Snap Inc., the parent company of Snapchat, is facing challenges as it tries to boost its revenue. While the company has shown promising signs, such as growth in overseas engagement and on its Spotlight platform, it has failed to increase its revenue for the second consecutive quarter. Meanwhile, digital-advertising giants like Alphabet Inc. and Meta Platforms Inc. have seen positive revenue growth.
According to Bernstein’s Mark Shmulik, there is a disconnect between the positive comments about Snap’s growth potential and the reality of its revenue performance. He pointed out that Snapchat is struggling to keep up with its peers in terms of ad growth.
Snap shares took a hit, falling 18% in premarket trading on Wednesday.
Shmulik acknowledged that it’s difficult to pinpoint the exact cause of Snap’s troubles, but he highlighted North America as a major concern. He noted that Snapchat’s biggest advertisers are not spending enough to support the platform’s overall growth.
Michael Nathanson from SVB MoffettNathanson was more direct in identifying the challenges faced by Snap. He emphasized the importance of scale, infrastructure, and engineering prowess in the current market environment. Nathanson expressed concern about Snap’s ability to monetize impressions effectively, despite its track record of product innovation.
In conclusion, Snap Inc. is facing obstacles in its efforts to increase revenue. While there are positive developments in terms of user engagement and advertiser count, the company needs to address its revenue growth issues to regain stability in the market.
Snap Faces Challenges in Building Engagement
Snap is facing difficulties in building engagement beyond its core messaging platform, according to analysts. Despite years of promise, the company seems to lack the resources to create a sustainable performance marketing strategy. As a result, Snap is trapped in a cycle of spending to fix a business that appears unfixable.
Analyst Ratings and Target Prices
Several analysts have weighed in on Snap’s current situation. Nathanson from Evercore ISI maintains a market-perform rating and a $6 target price on the shares. Mark Mahaney also stays on the sidelines, noting that Snap is undergoing transitions in its advertising business and spending initiatives, putting pressure on margins. Mahaney maintains an in-line rating and a $10 target price.
Solid Execution Needed for Positive Outlook
Although there are signs of improvement, such as advertisers returning to Snap and better adoption of new ad products, analysts like Mahaney believe that Snap still needs to demonstrate solid execution and clear progress towards profitability. Only then will they become more constructive on the company’s prospects.
Fixable Problems with a Longer Timeframe
On the other hand, Ross Sandler of Barclays has a more positive outlook on Snap. He believes that the company has fixable problems but acknowledges that it may take longer than some investors had hoped for. Snap is currently working on overhauling its ad-stack and repositioning its business for stronger growth in 2024. Sandler sets an overweight rating on Snap’s stock and increases his target price to $15 from $11.
Overall, analysts have different perspectives on Snap’s future. While some remain cautious about the company’s ability to turn things around, others believe that with time and effort, Snap can overcome its challenges and achieve success in the long run.