Snap's total addressable market represents a top concern for investors to "worry about most," Needham analyst Laura Martin wrote in a note. Management said the platform reaches 90% of 13- to 25-year-olds and 75% of 13- to 34-year-olds in the United States, which suggests a saturation point.
Positives And Negatives
Snap's report includes a few positive takeaways and negative read-outs, UBS analyst Eric Sheridan wrote in a note.
On the positive side: daily active user growth of 8 million beat estimates and rose in each region and platform, the company has a long-term opportunity to close the average revenue per user (ARPU) gap versus rivals and management discussed favorably its ongoing momentum in the advertising business.
On the other hand: North American ad revenue missed versus expectations, rest of the world (ROW) ad revenue also missed expectations and the midpoint of first quarter revenue guidance came in slightly below Street's expectations.
Snapchat's Improving Engagement
Instinet analyst Mark Kelley said that from a user perspective, the quarter marked an ongoing improvement in metrics as net adds of 8 million exceeded guidance of 4-5 million.
Discover remains a "major area of focus" as the company added 78 new international channels in the quarter versus 53 last quarter while Commercials more than tripled year-over-year and Stories doubled year-over-year.
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Monetization Top Priority
Snap deserves credit for implementing multiple improvements to its business in 2019, including a reorganization of its ad team, Morgan Stanley analyst Brian Nowak said. Looking forward to 2020, management will focus on improving ad relevance, scaling the sales and marketing team, and working on innovating ad products and augmented reality.
"In our view, it is particularly important for SNAP to continue to scale its direct response business over the next 12 months to drive meaningful upside to estimates," Nowak wrote in a note.
Erasing The 'Pause'
Snap's declining ARPU in the fourth quarter and the absence of an acceleration of impression growth amounts to a "pause" in the business, Rosenblatt Securities analyst Mark Zgutowicz said. However, management's first-quarter guidance implies the "pause" will be erased.
"Despite the North America pause in 4Q and a number of important product, content, and sales initiatives still requiring execution, we look forward to meaningful progression of advertiser and monetization growth in 2020," the analyst wrote in a note.
Snap Ratings And Price Targets
- Instinet maintains a Neutral rating on Snap's stock with an $16 price target.
- UBS maintains at Buy, $24 price target.
- Morgan Stanley maintains at Equal-weight, unchanged $20 price target.
- Rosenblatt Securities maintains at Buy, price target lifted from $21 to $23.
- Needham maintains at Hold, no price target.
Snap Price Action
Shares of Snap were trading lower by nearly 14% to $16.41 at time of publication.