By Sam Boughedda
A BofA analyst maintained a Buy rating and $22 price target on Snap (NYSE:SNAP) shares Tuesday, telling investors Snapchat Plus obtaining surprising traction could add $12 million to third quarter revenue and $200 million in 2023.
Snap launched additional Plus subscriber features and announced that there are over 1 million global paying users for Snapchat Plus, its subscription service launched in late June this year.
"Plus's 1mn paid subscribers represent less than 0.3% penetration of Snap's global DAUs of 347mn (2Q'22) and ~1% of US DAUs (99mn). Snap charges $3.99/month for Plus, with discounts for 6 month or 12 month subscriptions," said the analyst. "We are encouraged to see the early Plus user adoption, and see $12mn 3Q revenue potential assuming 1mn average users for 3Q. Assuming 3% penetration of US DAUs, 1% for European users and 0.4% for RoW users, we estimate a ~5mn 2023 subscriber opportunity. Assuming $40/year average pricing, Plus could generate ~$200mn/year in revenue, or 4% upside to our current $5.4bn 2023 estimates."
The analyst also brought up the growing scrutiny for Snap rival TikTok after BuzzFeed (NASDAQ:BZFD) reported that China-based employees of TikTok accessed private information on US users, and the FCC Commissioner raised security concerns over TikTok and appealed Apple (NASDAQ:AAPL) and Alphabet (NASDAQ:GOOGL) to remove the app from their app stores.
Focusing back on Snap, the analyst explained that they think Snap's "valuation at below 4x 2023 revenues (which is similar to the Pandemic valuation bottom in 2020) factors in risks that 2023 revenue will miss, with little optimism on upside potential."