Snap's (SNAP) progress on direct response ad growth, a "healthier bottom line" and a possibility of a TikTok ban bolster the 2025 outlook, RBC Capital Markets said Wednesday in a report.

"The combination of the Q3 beat pointing to the Q4 outlook being conservative" makes prospects "look incrementally compelling," the report said.

Snap's direct response advertising rose 16%, partly on improved attribution and optimization tools that enhanced cost-per-acquisition metrics and helped small and medium businesses adopt the platform more successfully, RBC said.

The "Simple Snap" app redesign and new ad formats such as Sponsored Snaps and Promoted Places will drive improvements in advertiser reach and appeal, the report said.

The company's Q4 guidance below market consensus reflects challenges in brand advertising with the broader ad business showing modest growth, the report said.

RBC maintained its sector perform rating on the company's stock with a $16 price target.

Snap's shares fell 2.2% in recent trading Thursday.

Price: 12.35, Change: -0.27, Percent Change: -2.18