Snap Explodes 24% As Robust Product Innovation Pays Off

Snap (SNAP) exploded 24% in Tuesday’s after-hours trading after the popular photo sharing app reported notably strong third quarter results.

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Specifically, Q3 Non-GAAP EPS of $0.01 beat Street expectations by $0.06 while GAAP EPS of -$0.14 beat by $0.04. Meanwhile revenue of $679M surged over 52% Y/Y and smashed consensus estimates by $127.17M.

Encouragingly, global daily active users came in at 249M (up 18% Y/Y) vs the 243.7M consensus and guidance of 242-244M, with ARPU (average revenue per user) of $2.73 easily topping the $2.27 consensus.

Operating cash flow also improved 28% year-over-year to $(55)M, while free cash flow rose by $15M to $(70)M in Q3 2020, compared to the prior year.

“Our focus on delivering value for our community and advertising partners is yielding positive results during this challenging time. We’re excited about the growth of our business in Q3 as we continue to make long-term investments in our future,” commented Evan Spiegel, CEO. “The adoption of augmented reality is happening faster than we had previously anticipated, and we are working together as a team to execute on the many opportunities in front of us.”

“We believe Snap just proved that the 58% Y/Y Revenue growth they saw in Jan/Feb was no fluke” cheered RBC Capital analyst Mark Mahaney following the results. He reiterated his buy rating on SNAP and bumped up the price target all the way from $28 to $45.

According to Mahaney, the significant investments in its core infrastructure have enabled Snap to accelerate its pace of innovation on the user side (Snap ML & Lens Studio, Maps, Games) and advertiser side. Plus he is also encouraged by management commentary on Android and iOS infrastructure investment.

Looking forward, Mahaney noted that management commentary calls for 47-50% Y/Y Rev growth in Q4. Although SNAP cited some caution around the uncertain macro environment and potential for an unusual holiday season, the analyst believes that “a higher portion of Retail sales through Online channels this COVID-impacted Christmas is likely a positive for SNAP.” (See Snap stock analysis on TipRanks).

The rest of the Street shows a bullish Strong Buy consensus on SNAP stock with 21 recent buy ratings vs 4 holds and 1 sell. Meanwhile the average analyst price target of $30 indicates 7% upside potential lies ahead- with shares already up 74% on a year-to-date basis.