Analysts are praying that Snapchat parent company Snap turns its stock around — and view Twitter as a role model.
Twitter struggled between 2015 and 2017, but is now finally turning a profit.
On Thursday, Snap, which has been struggling to grow and saw its stock drop dramatically this year, reports its Q3 2018 earnings.
Snapchat has had a rough time lately.
Under attack from Facebook and its sister app Instagram, the Snap Inc.-owned photo-sharing service’s userbase has flatlined, and Snap’s share price has plummeted around 70% since the IPO in March 2017.
But as the company gears up to announces its Q3 2018 financial results on Thursday, some analysts are betting that CEO Evan Spiegel can turn things around — and they’re pointing to Twitter as a role model.
The argument? From 2015 to 2017, Twitter looked a lot like Snap does today. There had been an exodus of executives. User growth was declining. It was failing to generate a profit. But the company pushed forward, made changes and drove user engagement, and in Q4 of 2017 it generated its first quarterly profit in history.
“If management is able to stabilize the user base and continue to show early stage monetization growth, the upside could be considerable, similar to TWTR’s outperformance over the past year,” Goldman Sachs analyst Heath Terry wrote in a research note published earlier in October.
Michal Pachter, an analyst at Wedbush, meanwhile, believes Snap could be “at an inflection point,” arguing: “While we believe that user growth (or lack thereof) is the biggest driver of Snap’s share price, we think that the company is well-positioned to dramatically grow revenue.”
Stuck in the ‘experimental bucket’
Of course, Twitter may have fixed some of its biggest problems and revived its sagging stock price, but the company is still struggling with major challenges that have crimped its growth.
And there are plenty of doubters about Snap’s prospects too. In a research note published October 23, SunTrust Robinson Humphrey’s Youssef Squali slashed his bullish price target for the stock from $13 to just $8, and warned of struggles to win over advertisers.
“Our conversations with marketers suggest that Snap continues to struggle to make itself a must buy for advertisers,” he wrote. “Snap remains relegated to the proof of concept/experimental bucket … advertisers remain wary of the company’s lack of user growth, and are still trying to gauge the effectiveness of the platform and their ROI.”
The company is facing other challenges too. On Wednesday, Cheddar reported that according to an internal Snap survey, 40% of employees are planning to leave the company — up 11% from earlier this year.
Snap will report its Q3 earnings after markets close on Thursday, October 24. Business Insider will be covering the results live.