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Snapchat Parent Loses $6 Billion in Market Value Overnight

Shares of Snap, parent company of Snapchat, took a royal beating after the social messaging and media company missed Wall Street’s first-quarter expectations and posted a massive $2.2 billion loss.

The company lost nearly $6 billion in market capitalization after Wednesday’s Q1 earnings report, its first as a publicly held entity. Snap’s stock opened at $17.96 per share Thursday, down 22%, giving it a market value of about $20.7 billion (versus $26.6 billion at market close Wednesday).

Snap’s average revenue per user declined 14% sequentially in the quarter. Snapchat added 8 million daily active users in Q1 to stand at an average of 166 million — up 36% year over year, but up just 5% from the prior quarter.

Approximately $2 billion of Snap’s net loss of $2.2 billion was attributable to stock-based compensation, with a whopping $750 million going to CEO Evan Spiegel.

But despite the major stock selloff, several analysts remained optimistic that Snap can deliver on future growth — with its coveted millennial-skewing audience — if it executes according to plan.

“Our thesis is intact,” Cowen & Co. analyst John Blackledge wrote in a research note. “We expect product innovations to drive/retain users and expect Snap to monetize the platform over time, as the company is under-monetized relative to peers across all markets and is really just turning on the lights in Europe and [the rest of the world].” Blackledge reduced his price target on Snap (from $26 to $21 per share) and maintained an “outperform” rating.

RBC Capital Markets’ Mark Mahaney also argued that Snap’s Q1 results were not “thesis-changing.” The analyst’s estimates are unchanged, with a price target of $31 per share and an “outperform” rating.

“Snap has become an innovation leader –- for both consumers and advertisers — in the single fastest advertising medium today: mobile,” Mahaney wrote in a note Thursday. “We believe that if it sustains its current level of innovation, it can sustain premium growth for a long time and scale to profitability.”

Snapchat’s daily user base is currently about one-eighth the size of Facebook’s, and its average revenue per user of 90 cents in Q1 was around 20% of Facebook (which reported ARPU of $4.23 for the period). That differential implies “substantial growth opportunities,” according to Mahaney.

However, not everyone on Wall Street remains bullish. MoffettNathanson’s Michael Nathanson reiterated his “sell” rating, lower his price target from $15 to $11 per share, on the earnings miss.

The “rapid deceleration” in Snapchat’s user growth “confirms our view that Snap is highly penetrated amongst its core target demos and will hit a ceiling on [daily active user] growth sooner than the stock is pricing in,” Nathanson wrote.

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