Wait For It...Snap's Long-Term Potential Anchored By Priced-In Growth, Profitability

While Snap Inc (NYSE: SNAP) has built a highly innovative and engaging communication platform and enjoys the patronage of younger users, shares are pricing in “tremendous growth and a dramatic swing to sustained profitability,” Loop Capital’s Blake Harper said in a report. He initiated coverage of Snap with a Hold rating and price target of $21.

Near-Term Potential, Longer-Term Uncertainties

At the core, Snap is an aspiring camera company and is investing heavily in computer vision and visual communication. However, it is “effectively” a media company that is dependent on advertising revenue to meet aggressive revenue growth expectations, Harper pointed out.

With advertisers looking for new channels to target a younger user base, Snap should be able to attract experimental ad budgets over the next couple of years.

The analyst mentioned, however, that Snap’s financial success in the longer term would depend on the company being able to reach “a broader audience of new users over 35 years old and subsequently attracting larger chunks of advertising budgets.”

Snap could continue to innovate and add new products to meet its goals. However, the company faces a highly competitive landscape, with the “greatest challenge” coming from Facebook Inc (NASDAQ: FB) (Buy Rated) and Instagram. “Instagram’s quick traction with its Stories feature appears to have stalled some of Snapchat’s DAU [daily average user] growth,” Harper noted.

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