SunTrust Robinson Humphrey initiated coverage of three big social media platforms Wednesday, taking a bearish stance on one platform, which it says has “farther to fall.”
That company was Snap Inc.
which Youssef Squali, lead analyst on all three reports, initiated at sell, saying the company has more downside than reflected in analyst estimates.
Squali started coverage of Facebook Inc.
with a buy rating, speaking to its outsize profits in the social sector and ability to “outgrow the competition.” Twitter Inc.
is more of a question mark, with Squali initiating the stock at hold, citing the company’s lack of user growth but improved focus on its core platform.
Snap has a young and “impressive” user base, Squali said, particularly in terms of engagement on the platform. Snap’s user growth, which touched 173 million daily active users in its latest quarter, up 21% from the year-earlier period, is a sign of a healthy base, he said.
However, as the company ramps up its self-serve platform, it has been cutting down on ad pricing, which Squali said will create headwinds for revenue growth in the second half. Revenue could increase if more advertisers come to the platform, but Snap’s advertising efforts are also under pressure from competition with Facebook’s Instagram Stories, which has a larger and growing daily active user base.
Additionally, Snap’s stock has been facing lockup expirations for early investors, executives and employees, adding more shares to the float. All of these issues will cause the stock to underperform, he wrote, setting a $10 price target.
Shares of Snap have fallen 17% in the past month, while the S&P 500
has gained less than 1%.
In contrast, the analyst views Facebook as “king of the social web,” due to its growing overall global reach of about 70% of internet users worldwide across all of its platforms. That reach, along with Facebook’s collection of user data, is valuable to advertisers.
Squali is expecting Facebook to enjoy a five-year compound annual growth rate of 25% from 2017 to 2022, propelled by advertising, as well as increased engagement and the potential monetization of its WhatsApp and Messenger service, as Facebook scales back ad load on its main newsfeed.
Squali set a buy rating and $210 price target for Facebook. Shares of Facebook have gained 6% in the past month.
Then there is Twitter. The social media platform stands apart because of its real-time nature and has made positive moves into live video content, while cutting away segments, such as a “buy” button, that distracted from its core product.
But Twitter has struggled to make revenue off its user base, and has been hurt by largely flat growth in monthly active users. Squali said daily active user growth appears to be strong, though Twitter does not break out an exact number.,
But Twitter will not be able to turn around its monetization issues without growth in monthly users, he wrote.
The analyst assigned Twitter a hold rating and $16 price target.