Snap Inc (NYSE: SNAP) reported fourth-quarter results Feb. 5 that generated "incremental enthusiasm," but three key questions remain regarding the sustainability of the social media platform's long-term growth, according to Guggenheim.
Guggenheim Partners' Michael Morris maintained a Neutral rating on Snap with a price target lifted from $7 to $9.
Question 1: Is Instagram Too Big Of A Threat?
Snap's Q4 report suggests Instagram's larger user base and platform isn't putting pressure on Snapchat's engagement, especially among younger users, the analyst said.
Overall domestic monthly Snapchat users fell at a faster rater than Instagram throughout 2018, and monthly visits among younger users fell at Snapchat in the back half of 2018 — but grew at Instagram.
Question 2: Will Android Be A Winner?
ComScore data shows Android users account for 88 percent of global mobile minutes and power 78 percent of all devices, but only a mid-to-high single digit percentage of Android users have Snapchat.
While this may imply a "blue sky opportunity" for Snapchat, the company needs to overcome two obstacles with its Android redesign, Morris said: the upgraded app needs to be consistently successful across a diverse set of Android devices, and the Android app needs to offer an equally enjoyable experience compared to the iOS app.
Question 3: Can Snap Generate Ad Pricing Power?
Snap detailed encouraging anecdotal and quantifiable commentary during its conference call that should be "well-received" by its advertising clients, Morris said. The company ended Q4 with domestic advertising revenue per minute of $0.0028, a three-year high, the analyst said.
Snapchat's ability to target a younger audience coupled with the efficiency of its self-service platform, along with a more robust content offering, should generate continued ad pricing power this year, Morris said. But over the near-term, this metric will take a backseat to usage growth, which will be a higher priority for investors to justify upside to Snap's stock, he said.
Snap shares were trading up slightly at $9.10 at the time of publication Monday.
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Latest Ratings for SNAP
|Feb 2019||Raymond James||Upgrades||Underperform||Market Perform|
|Jan 2019||Credit Suisse||Maintains||Outperform||Outperform|
|Jan 2019||RBC Capital||Downgrades||Outperform||Sector Perform|
View More Analyst Ratings for SNAP
View the Latest Analyst Ratings
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