On Friday, Benchmark reiterated a Hold rating on shares of Snap Inc (NYSE: NYSE:SNAP), ahead of the company's third-quarter earnings report scheduled for Tuesday, October 29, after the market closes. The firm highlighted concerns about Snap's average revenue per user (ARPU) growth, citing a lack of near-term catalysts, particularly in direct response (DR) and branding efforts.
The analyst noted that Snap faces challenges with engagement levels in North America reaching saturation, year-over-year declines in impression pricing, and a reduction in sales and marketing (S&M) personnel. These factors are expected to continue exerting pressure on the company's top-line revenue growth.
Despite these challenges, consensus revenue revisions for the years 2024 and 2025 have only been slightly adjusted downwards by approximately 0.7% and 1.4% respectively. However, adjustments to projected adjusted EBITDA are more significant, with estimates revised downward by roughly 8% for 2024 and 11% for 2025.
Benchmark's revenue estimates for the second half of the year are approximately 2% below the consensus, and their projections for 2025 are 5% lower. The firm anticipates that Snap's management will maintain a focus on expense management, which is reflected in Benchmark's adjusted EBITDA estimates that are above consensus.
In conclusion, Benchmark is maintaining its Hold rating on Snap as it heads into its earnings report, with the firm's outlook remaining cautious due to the identified headwinds and limited near-term revenue growth drivers.
In other recent news, Snap Inc has been the center of various analyst reports and business developments. Snap's total revenue saw a 16% year-over-year increase, reaching $1.24 billion in Q2 2024, with advertising revenue accounting for $1.13 billion. The company also engaged in merger activity, with its partner Sahara AI securing $43 million in funding led by Pantera Capital.
In the realm of analyst ratings, JMP Securities upgraded Snap from Market Perform to Market Outperform, citing upcoming product launches and advertising enhancements. However, TD Cowen maintained its Hold rating on Snap, projecting a slowdown in revenue growth for the third quarter but a slight increase in earnings before interest, taxes, depreciation, and amortization (EBITDA) at $96 million.
BMO Capital maintained its Outperform rating on Snap, indicating positive trends such as a significant increase in user engagement due to the company's collaboration with Google (NASDAQ:GOOGL) Cloud to enhance artificial intelligence features.
In terms of user safety, Snap and Meta (NASDAQ:META) have committed to working with U.S. and British authorities to enhance online safety for children. This comes in response to the formation of a trans-Atlantic government working group aimed at protecting young users on platforms like Snapchat and Instagram.
These are the recent developments in Snap Inc, showcasing a steady expansion of the company's user base and potential revenue from advertising.
InvestingPro Insights
As Snap Inc. (NYSE: SNAP) approaches its third-quarter earnings report, InvestingPro data and tips provide additional context to Benchmark's cautious outlook. The company's market capitalization stands at $17.04 billion, reflecting its significant presence in the social media landscape despite the challenges outlined in the article.
InvestingPro Tips highlight that Snap "operates with a moderate level of debt" and has "liquid assets exceeding short-term obligations," which could provide some financial flexibility as the company navigates its current headwinds. However, aligning with Benchmark's concerns, another tip notes that Snap is "not profitable over the last twelve months," with a negative P/E ratio of -15.71.
The revenue growth of 11.08% over the last twelve months and 15.84% in the most recent quarter suggests some positive momentum, potentially offsetting concerns about ARPU growth. Yet, the operating income margin of -23.0% underscores the profitability challenges mentioned in the article.
Interestingly, while Benchmark maintains a Hold rating, InvestingPro data shows a fair value of $12.57, slightly above the previous closing price of $10.27. This suggests potential upside, though investors should weigh this against the concerns raised in the article.
For readers seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Snap, providing a deeper understanding of the company's financial position and market performance.
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