More Favorable Macro Conditions Needed for Snap Memo Targets

© Reuters.

By Sam Boughedda 

On Wednesday, an internal memo from Snap (NYSE:) CEO Evan Spiegel laying out his plans for future growth was leaked.

Spiegel outlined 2023 goals for the company, including 30% DAU growth to 450 million, revenue of $6bn, and FCF above $1 billion.

Following the news, analysts at BofA Securities, KeyBanc Capital Markets, and UBS provided commentary:

A BofA analyst, who has a Buy rating and a $22 price target on the stock, told investors in a note that while they see the targets as a stretch, they are encouraged by management’s ambitions.

“More favorable macro conditions may be necessary to achieve these targets, but with August revenue growth at 12-15% estimated, Snapchat Plus is likely seeing better-than-expected traction, and easier revenue growth comps ahead, a material macro improvement may not be necessary to achieve Snap’s goals,” the analyst said.

A KeyBanc Capital Markets analyst stated the firm is refining estimates for the August update and is contemplating the internal memo targets.

The analyst, who has a Sector Weight rating on Snap shares, explained: “Barring an 8-K update, we view this as an internal goal vs. formal guidance. Nevertheless, we believe it is instructive to frame these targets against our revisions.”

“We believe ad revenue growth of ~20% is feasible. This largely requires ongoing AdTech improvements, advertiser wins, and international progress. While above us, this appears to be less of a stretch than other targets,” he added. “We are more skeptical of Snapchat+ and DAU and MAU targets.”

Finally, an UBS analyst said the firm was encouraged to see the internal memo from Snap’s CEO, laying out bullish targets.

“If we assume $6B target revenue in 2023 and an EBITDA margin of 27%, the shares would be trading at an implied 11.3x on EV/adjusted EBITDA on ’23E,” explained the analyst.

“We recognize this could be an internal stretch goal and the co is in a show-me mode given macro uncertainty. Nonetheless, we think the co has done a good job executing, showing DAU growth of 85% since ’18 to date and growing revenue 3x from ’18 through ’22E. As such, we give mgmt the benefit of the doubt here. We acknowledge ongoing macro uncertainty, but think growth likely bottomed in July.”

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