What Happened?
Shares of social network Snapchat (NYSE: SNAP) jumped 5.3% in the morning session after JMP Securities analysts reaffirmed the stock's Buy rating, with a price target of $16, which implied a potential 35% upside. The analysts think the demand for SNAP's new ad formats should boost advertising revenue in 2025.
After the initial pop the shares cooled down to $11.79, up 4.7% from previous close.
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What The Market Is Telling Us
Snap’s shares are very volatile and have had 20 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 11 months ago when the stock dropped 34.5% on the news that the company reported weak fourth-quarter results with revenue and average revenue per user (ARPU) missing analysts' expectations amid elevated expectations around changes in the direct response business.
User growth was steady, with DAU (daily active users) ahead of estimates as net additions in Europe and the Rest of the World more than offset the customer attrition recorded in North America. This North America attrition is sure to ring alarm bells about competition, with Meta recently reporting very encouraging results.
While next quarter's revenue guidance was in line, adjusted EBITDA guidance was well below. This shows that Snap's growth is coming at higher costs or less efficiency than expected. Moreover, the ARPU miss and the weakness in North America DAU indicate a challenging road ahead if the company aims to surpass expectations in the upcoming quarter.
During the earnings call, management hinted at potential growth investments in North America and Europe and expressed optimism about avoiding further declines in North America in Q1.
Overall, this was a mediocre quarter for Snap as the market was likely expecting more, considering the strong result reported by Meta earlier in the season.
Investors who bought $1,000 worth of Snap’s shares 5 years ago would now be looking at an investment worth $704.41.
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