Wall Street Is Suddenly Bullish On Snap

Evan Spiegel

Snap's stock is finally finding a few friends on Wall Street.

He would become more constructive on the stock if it were to fall closer to $20 per share, although it doesn't look like that will happen any time soon, as investors are boosting shares thanks to this morning's flood of positive analyst coverage. The stock has a 50 day moving average of $22.01 and a 200 day moving average of $22.01. Snap priced shares for its IPO at 17.

The owner of the Snapchat messaging app saw its stock rise as much as 2.8 percent Monday after several banks gave it a buy rating - defying a recent rash of skepticism about Snap's heavy losses and slowing user growth.

"With a far larger user base and far deeper pockets, Facebook can potentially derail Snap's rocket growth by taking users and advertisers as well decrease (annual revenue per user) with more offerings and user engagement tools".

"Our survey work shows a preference for Snapchat among younger Demos & engagement is high - users visit 18 plus times per day and spend 25-30 mins per day".

Jefferies analyst Brian Fitzgerald initiate coverage of Snap stock with a Buy rating and $30 price target and said he doesn't feel the company's growth will disappear like the photos posted on Snapchat do.

By attracting a young crowd that obsessively checks the app, Snapchat might be able to get away with remaining smaller than its peers. Analysts cast doubt on Snap's ability to compete as an advertising platform with other social networks like Facebook and to become profitable. Snap has a 52 week low of $18.90 and a 52 week high of $29.44.

RBC Capital Markets LLC analyst Mark Mahaney is the most bullish, mainly due to Snap's strong mobile presence.

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"While user growth and audience scale may remain modest compared with Facebook, the low rate of monetization now and the high rate of engagement and penetration of Snapchat's product within its core 13-24 age demo should enable significant revenue growth and margin leverage".

Snap has experimented with a number of mobile ads, introducing full-screen video advertisements in addition to more creative formats like sponsored lenses and geofilters. He bills the Snapchat parent as "an innovation leader" in mobile for both advertisers and consumers.

Snap is still unprofitable and losses widened to $514 million past year on revenue of $404 million.

"We believe the potential for outperformance as the company continues to innovate against the growing mobile opportunity outweighs those early-stage risks", he said.

Fitzgerald also points out that the company's strategy is an asset-light one because it outsources its infrastructure costs to Google and Amazon.

Even so, critics have pointed to the intense competition that Snap faces, its long road to profitability and the relative inexperience of its management team.

Terry noted Snap is spending more cash than it's generating in revenue. Seven investment analysts have rated the stock with a sell rating, six have assigned a hold rating and three have given a buy rating to the stock.