One of Snap's biggest supporters on Wall Street says the company is still 'a clear innovation leader'

Mike Blake/Reuters

• Snap's first-quarter earnings were a disaster, and analysts up and down Wall Street are downgrading the stock.
• But the company's future isn't as bleak as everyone thinks, according to RBC Capital Markets analyst Mark Mahaney.
• Snap is innovating on its advertising platform, which can draw even more advertisers in, he said.
• User time spent on the platform is strong, Mahaney said, and iinternational growth is still in the early stages.
• Watch Snap trade in real time here.

Snap's first-quarter earnings were a disaster, and analysts up and down Wall Street are downgrading the stock. But RBC Capital Markets analyst Mark Mahaney still believes in the company, and isn't dissuaded by its brutal quarter.

"We still view Snap as a clear innovation leader," Mahaney wrote in a note out to clients out Tuesday morning, just before shares crashed more than 20% to an all-time low. He is one of the most bullish Snap analysts on Wall Street, with a price target of $16 a share, roughly 45% above current levels.

"Revenue was $230.7 million in Q1 2018, up 54% year-over-year driven by growth in Snap Ads, and down 19% sequentially, primarily due to seasonality and our redesign," Snap's earnings release said.

And CFO Drew Vollero said Snap won't be bouncing back any time soon. "We are planning for our Q2 growth rate to decelerate substantially from Q1 levels," Vollero said.

Mahaney thinks Snap's product strategy, in tandem with what he sees as an expanding digital advertising market, will propel the company forward in the long-term.

"Snap is putting in place the pieces (product innovation, Android overhaul, and self-service ad solutions) that can drive longterm growth," he said. "The rising tide that is internet advertising can support robust growth at Snap for some time."

With more than 90% of Snap ads now programmatic, Mahaney thinks that more marketers will be attracted to the platform going forward.

In addition, the company reported daily active user growth of 4 million from last quarter, below Wall Street's expectation of 7 million. But that doesn't necessarily indicate weak future revenue growth, as user time spent on the app could offset the growth in number of users.

"Despite the app redesign headwinds, SNAP noted users continue to spend over 30 minutes per day in Q1:18," Mahaney wrote.

Lastly, Mahaney says Snap has a lot of room for international growth. North America revenue per user is much higher than in other parts of the world, suggesting that Snap has room to monetize its platform globally. Here is a graph showing Snap may have room for international growth:

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