Snap is the 'comeback kid.' Here's what Wall Street is saying about its latest results.

Rebecca UngarinoFeb 6, 2019, 20:25 IST

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Snap, Snapchat's parent company, exceeded Wall Street's expectations on Tuesday.
The social media company reported a smaller quarterly loss than was forecasted, and revenue also topped expectations.
Shares soared more than 20% the results.
Investment firms were mostly upbeat on the results. Snap pre-announced last month that guidance would come in "slightly favorable to the top end" of the company's previous forecast.
Watch Snap trade live.

Wall Street was quick to heap praise onto Snapchat's parent company, Snap, after the social-media platform reported fourth-quarter results that exceeded expectations. The report led analysts on Wednesday to wonder whether the troubled stock had reached an inflection point, though many cautioned any kind of turnaround was in its early stages.

Snap's quarterly loss on Tuesday came in smaller than was expected, and its sales also topped consensus expectations, sending the stock soaring more than 22% early Wednesday to $8.65 a share. Analysts were also encouraged by the Snapchat app's daily active user count - a key measure of the app's health - stabilizing in the fourth-quarter after two quarters of declines.

The company had already announced in a filing last month - when it also said its CFO would leave the company - that its revenue and adjusted EBITDA numbers would come in "slightly favorable to the top end" of its prior guidance.

The results drew at least six analysts tracking the stock to raise their price targets, though all were well below the company's initial public offering price of $17 a share. The average price target on Snap is now $8.35, according to analysts surveyed by Bloomberg.

Still, while analysts lifted their price targets far and wide, less common were changes in their investment recommendations. Analysts like Mark Mahaney at RBC Capital Markets and Doug Anmuth at JP Morgan, who both bumped up their price targets, maintained their "sector perform" and "underweight" ratings, respectively.

"Though these were encouraging results, one quarter doesn't make a trend and we remain Underweight as we look for further signs of improvement in the business," Anmuth told clients on Wednesday.

Meanwhile, a more cautious analyst, SunTrust's Youssef Squali, maintained both his $8 price target and "hold" rating. Squali said the quarterly results pointed to "sustained advertiser demand, stabilization in user growth and better cost containment."

He added: "That said, lack of visibility into DAU growth re-acceleration (likely post the full Android app re-launch), timing of break-even and valuation keep us on the sidelines."

Here's a summary of what other Wall Street analysts are telling their clients about Snap's latest report:

See Snap is the 'comeback kid.' Here's what Wall Street is saying about its latest results. >>

Jefferies: 'Encouraging Steps by the Comeback Kid'

Rating: Hold

Price target: $9 (from $7)

"We remain on the sidelines, but are incrementally more positive with underlying growth in iOS users and a niche audience that is increasingly difficult to reach in a digital age," analyst Brent Thill told clients Wednesday.

He added that 2018 was the "year of exodus from both employees and users on the platform, but we believe that Snap is turning the corner in '19 and that will help investor sentiment improve throughout the year. We also would like to see Snap lay out some simple framework on its 3-5 year planning and help to simplify the narrative around the story."

RBC Capital Markets: 'An Inflection Point?'

Rating: Sector Perform

Price target: $10 (from $8)

"Things clearly getting less worse, but are they getting better?" Mark Mahaney wrote in a note on Monday.

He said he was maintaining his rating on the stock, rather than upgrading it, due to "valuation and uncertainty."

"SNAP noted that it is cautiously optimistic and does not foresee a Q/ Q decline in DAUs in Q1. Still, we are reserving judgement on the early, limited release of the improved Android app, with mngmt saying early tests showing promise," he wrote, referring to daily active users.

JP Morgan: 'A Better Quarter w/ Users Stable & Progress on Negative EBITDA & FCF'

Rating: Underweight

Price target: $7 (from $6)

"Though these were encouraging results, one quarter doesn’t make a trend and we remain Underweight as we look for further signs of improvement in the business," analyst Doug Anmuth said. "We continue to believe growing DAUs will be challenging and the competitive landscape for both user time and advertiser dollars remains intense."

He added: "We believe there is better risk/reward in other names, including FB & TWTR, which are two of our top picks."

Citi: 'Snap Makes Progress in 4Q18'

Rating: Neutral

Price target: $9 (from $7)

"Mgmt stated that it has begun to roll out its new Android app to small set of users, and that tests have been positive," analyst Mark May, who upgraded the stock last month to "neutral" from "sell," wrote in a report out Wednesday.

"All in, we view these results and outlook as encouraging. However, given valuation and still-flat user and engagement trends, we are maintaining our Neutral rating."

Credit Suisse: 'DAU Stabilization, Waiting for Growth/Android Catalysts to Emerge'

Rating: Outperform

Price target: $10.50 (from $9.50)

"As we look forward to the balance of 2019, the more important product development will be the Android app release to help reignite user growth," analyst Stephen Ju told clients on Wednesday. "Timing remains TBD for now, although Snap acknowledged that it remains in beta testing in a number of different regions."

He added: "We continue to assume DAU deterioration for 1Q19-3Q19 as before, with Snap to show a U-shaped recovery starting in 4Q19."

Instinet: 'Things Starting to Stabilize'

Rating: Neutral

Price target: $9 (from $6)

"The two most positive pieces of the 4Q story were that the user base stabilized, and the redesigned Android app has been rolled out selectively after a fairly long wait; the company expects a broader rollout to other geographies sooner rather than later," analyst Mark Kelley told clients Wednesday.

he added: "We also think the Stories ad format is gaining traction by virtue of Facebook’s push there as well, which is something that likely bodes well for SNAP longer term if user trends improve."

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