Snap (SNAP) is expected to report results on its fourth quarter on Tuesday, January 31, with a conference call scheduled for 5:30 pm EDT. What to watch for:
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LESS SHARP NEAR-TERM REVISIONS: In a research note ahead of Snap’s Q4 results, Benchmark says it expects to hear of limited Q1 revenue visibility and more cost efficiencies in 2023, the latter required to support the stock price given distant GAAP profitability. With ending 2022 headcount of 5200, the firm believes the company needs to cut at least another 700 heads in 2023 to accommodate decelerating revenue. Benchmark estimates 2023 revenue of +5% year-over-year versus consensus’ +9%, down from 2022 +12% year-over-year. Overall, the firm does not expect near-term revisions to be as sharp as the recent past, which may provide a modest relief rally. Benchmark has a Buy rating on the shares with a price target of $11.
MOVING TO THE SIDELINES: Earlier this month, JMP Securities downgraded Snap to Market Perform from Outperform without a price target. The firm also reduced estimates again, citing declining U.S. time spent on Snap, which it believes is a direct consequence of increased competition from Reels and YouTube Shorts. JMP now prefers shares of Meta (META) and Google (GOOG. GOOGL) over Snap, saying both have more mature short-form video products, which it expects to attract more user time over the next few years. Short-form video platforms are taking share of time from Snapchat, JMP tells investors in a research note.
Jefferies also downgraded Snap to Hold from Buy last month, with a price target of $10, down from $12. The firm believes the Street is "overly optimistic" on digital advertising growth in 2023 and 2024 and sees Snap's lack of catalysts as a "concern." Further, Jefferies lowered its full year 2023 revenue estimates across its coverage by 3%-7%, bringing his forecasts 5%-10% below consensus.
REVENUE GROWTH CAN REBOUND: More bullish on the name, New Street initiated coverage of Snap with an "out-of-consensus" Buy rating and $12 price target back on January 4. Falling U.S. engagement is the key risk, but the firm thinks revenue growth can rebound more than the Street expects in 2023 as new ad product gains traction. New Street also expects profitability and margin expansion to be "re-invigorated."