Snap Inc.: Hold Rating Maintained Amid Cost-Cutting and Competitive Valuation Concerns

Snap (SNAPResearch Report), the Communication Services sector company, was revisited by a Wall Street analyst yesterday. Analyst Justin Post from Bank of America Securities reiterated a Hold rating on the stock and has a $18.00 price target.

Geoff Meacham has given his Hold rating due to a combination of factors including Snap’s recent layoffs and the performance of its peers in the social media space. The layoffs suggest caution regarding Snap’s revenue growth potential, particularly as the company aims for a 20%+ growth target in 2024. Moreover, while the fourth-quarter social ad spending appeared strong, the associated reduction in staff may not bode well for significant revenue increases. The adjustments to revenue and EBITDA forecasts reflect these considerations, alongside the influence of industry-wide trends observed in Meta’s and YouTube’s recent results.

The report also indicates that Snap’s focus on improving profitability, particularly through margin enhancement and cost reduction via layoffs, is a positive sign. However, the stock’s valuation remains high when compared to peers, even with an improved outlook for EBITDA in 2025. Meacham’s revised price target of $18 is based on a slightly higher revenue forecast for 2025 and expectations for better margins, but the company’s valuation at 42 times 2025 EBITDA signals a premium over its competitors. This, coupled with the preference for other social media companies with similar growth expectations but more attractive valuations, underpins the Neutral rating.

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Snap (SNAP) Company Description:

Founded in 2010 and based in California, Snap, Inc. is a social media company and provides a camera platform in the U.S. and internationally. It has developed many technological products and services including Snapchat, which uses the camera and editing tools to take and share Snaps; Bitmojis, which are personal emojis; Spectacles, which are wearable sunglasses capable of taking Snaps and interacting directly with the Snapchat application. The company’s primary source of revenue is advertising.

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