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Stock Analyst Update

Snap Misses Expectations Again

Our fair value estimate is intact for this no-moat and very high uncertainty name.

Mentioned:

 Snap’s (SNAP) second quarter was yet again disappointing as the firm missed on the top and bottom lines. Revenue generated per user displayed healthy growth, however, the daily average user growth came in below expectations. While Snap is making headway into further monetizing its user base, we still believe lack of robust growth in the firm’s overall user base weakens the sustainability of any network effect. Given the ongoing slow user growth, we adjusted our model by slightly lowering our revenue growth and margin expansion assumptions. Those adjustments did not impact our fair value estimate of $16 per share for this no-moat and very high uncertainty name. In reaction to the firm’s second-quarter results, Snap shares are down 16% in after-hours and are trading at a 28% discount to our fair value estimate. At this level, the stock is now in 4-star territory, which may represent an attractive entry point for some potential investors with high risk tolerance.

Total revenue of $182 million was up 21% and 153% sequentially and year-over-year, respectively. Advertisers continue to allocate ad dollars to Snap’s platform as displayed by the firm’s 110% year-over-year growth in average revenue per user, or ARPU. We saw some improvement in the daily average user count, as it grew 5% sequentially and 22% from last year to 174 million. However, in our view, these growth rates continue to show the difficulties that Snap faces when going head-to-head against Facebook’s 250 million Instagram DAUs. We estimate Instagram DAU growth of 17% over the last three quarters, compared with Snap’s 9%.

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Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.