Bullish Snap analyst : “Will stabilize from here”

As Snap endures a serious market beatdown Wednesday after posting earnings yesterday, bullish Deutsche Bank analysts maintained their “buy” rating on the stock, writing that they have confidence in the company’s strategic moves despite economic uncertainty created by President Trump’s trade war.

In particular, they spotlighted Snap’s growing SnapChat+ subscription service and momentum in its “direct response” advertising business. Direct response ads are a growth area of the ad industry, focused on digital ads that nudge viewers to take some sort of immediate action, like making a purchase or download.

Growth in direct response ads, Deutsche analysts wrote, will allow the company to boost ad sales to small and medium-sized businesses, diversifying the company’s client base. They wrote:

“While the company acknowledged that advertiser spending has been impacted by the macro environment, including some of those impacted by the changes to the de minimis trade exemption, we contend that Snap’s ad platform moving down funnel will help diversify toward an increasingly durable revenue mix, supported further by outsized [small and medium sized business] advertiser growth (up 60% y/y in 1Q), and continued strong growth at SnapChat+.

Overall, we think North American and EU daily active user trends will stabilize from here and we are positive on Snap’s ability to scale its direct response business, become more performant, drive greater adoption from SMB advertisers, and deliver greater revenue durability through subscriptions.

All in, we maintain our Buy rating, however lower our target price to $8.50 from $10.”