Snap Inc (NYSE: SNAP) stock has risen 11.4% Credit Suisse analyst Stephen Ju upgraded the social-media company. More specifically, as per the analyst Snap’s recent launch of ad products, also including its Snap Publisher tool, which allows advertisers to easily cut vertical ads in just minutes “should bolster the incentive to test the platform. He considers that Snap is taking the necessary steps in the background to reduce friction against incremental ad budget allocations. Credit Suisse thinks that advertisers are finally getting used to Snapchat, which should result in more advertising dollars going its way. It does not hurt that the company launched its Snap Publisher self-service feature in July that enables advertisers to create vertical ads, those that target a specific audience in under two minutes. The horizontal ads are ones that go after a wide audience rather than a niche and the new platform too should draw more marketers to the platform.
Ju has increased his per-share price target on Snap stock from $17 to $20, which represents a staggering 39.5% premium from yesterday’s close. He has maintained an Outperform rating into Q3 results, saying CPMs are likely stabilizing. Snap stock hasn’t traded near $17, which was its initial public offering price, since June. Recently the stock was up 3.5% or $0.50 to $14.84. Citing Bloomberg data, Business Insider reported the Wall Street consensus price target stands at $15. The stock is off more than 40% since it began trading in March.
Moreover, Snap is also taking additional steps to increase visibility for its advertising platform. The cost per thousand clicks in the second quarter had dipped as low as $2.35 but has started to inch higher. The analyst Ju expects to see its momentum building in the third and fourth quarters of this year 2017. Snap will be releasing their third-quarter results early next month, so investors will need to wait until then to see the effects. Ju now believes Snapchat has reached 78.2 million daily active users in North America during the third quarter, 3.2 million more than the previous quarter, which would account for an increase in revenue to $227.9 million for the quarter on a loss of 18 cents a share. Credit Suisse had previously estimated Snap would add 1.5 million daily active users in North America
Therefore, the analyst’s longer-term investment thesis remains to be based on the fact that Ju believes SNAP shares at current levels are now exhibiting asymmetric risk/reward to the upside, with downside risk of approximately 6% in the Grey Sky scenario and upside potential of approximately 39% to the target. In addition, it is a scarce asset that offers advertisers access to a coveted younger demographic and Snap is a margin expansion story with revenue CAGR exceeding cost of sales.
However, the market research firm eMarketer expects ad revenue for Snap to come in at $775 million, which is much lower than its past estimate of $935.5 million. Ju expects the company turning a profit in the fiscal year 2022, with projected losses of $3.5 billion this year. One reason for the loss is the company’s stock-based compensation, which awarded nearly $2 billion to executives and insiders once the company went public. Ju projects a $1.17 billion loss in FY18.
SNAP stock has fallen 40.54% in a year (source: Google Finance).