Snap rises as Wall Street embraces profitability promise

Snap rises as Wall Street embraces profitability promise

Shares of Snap Inc reversed initial losses following Tuesday's results, rising 4per cent in early trade as analysts focused on strong third-quarter numbers rather than a disappointing revenue outlook for the final three months of the year.

The Snapchat app logo is seen on a smartphone in this illustration
FILE PHOTO: The Snapchat app logo is seen on a smartphone in this picture illustration taken September 15, 2017. REUTERS/Dado Ruvic/Illustration

REUTERS: Shares of Snap Inc reversed initial losses following Tuesday's results, rising 4per cent in early trade as analysts focused on strong third-quarter numbers rather than a disappointing revenue outlook for the final three months of the year.

At least six brokerages raised price targets on the parent company of photo messaging app Snapchat, with JP Morgan one of two brokerages to boost its recommendation for the shares to "overweight" from "neutral".

After a period when the social media company and its trademark disappearing messages have struggled to compete with Facebook's Instagram, JPM analysts said they expected Snap to capture greater advertising spending.

Many also emphasized Snap's estimate that it would reach profitability in the fourth quarter, as measured by earnings before interest, tax, depreciation and amortization (EBITDA).

Jefferies analyst Brent Thill said that Snap's potentially conservative forecast and accelerated path to profitability also gave him more conviction in Snap's story, although he was disappointed by its fourth-quarter revenue forecast.

"Jefferies is positive fundamentally (on Snap), but would wait for a pullback to get constructive," Thill said.

Snap estimated fourth-quarter revenue at US$540 million to US$560 million, the midpoint of which was below analysts' estimate of US$555.4 million, according to IBES data from Refinitiv.

RBC Capital Markets analyst Mark Mahaney said Snap was still one of the most innovative platforms in the social media space and highlighted that the company was "arguably more investible now than at any point in its public trading history".

"The last couple quarters suggest premium growth resilience and a more credible path to profitability (for Snap)," Mahaney said.

Shares of the company were up nearly 4per cent at US$14.55 in early morning trading on Wednesday, having fallen around 5per cent following the results on Tuesday.

Up to Tuesday's close, Snap shares are up more than 150per cent this year.

(Reporting by Aakash Jagadeesh Babu in Bengaluru, additional reporting by Neha Malara; editing by Patrick Graham, Bernard Orr)

Source: Reuters

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