One of this year's most surprising winners is Snap (NYSE: SNAP), and perhaps the bigger shock is how many naysayers are changing their minds despite the buoyant shares that would make it easier to validate their earlier valuation fears. Jonathan Kees at Summit Insights is the latest analyst to shake his bearish ways when it comes to Snapchat's parent company.
Kees is upgrading his rating from sell to hold following new content initiatives announced by Snap on Thursday. He is doubling his price target from $5 to $10, but that's barely keeping up with the stock's heady gains in recent months. Snap stock has more than doubled in 2019, up 105% so far this year.
Singing a new tune
Summit Insights' Kees isn't necessarily bullish on Snap. His new $10 price target is actually below where the shares are now. However, he's now another former bear who is at least conceding that momentum isn't on the side of the short-sellers.
Snap unveiled a platform for multiplayer games on Thursday, something that should make Snapchat more engaging if even a small chunk of its 186 million active users decides to play. Snap also introduced new services and advertising products that should help increase its already impressive gains in monetizing its currently stagnant audience levels. Revenue rose a better-than-expected 36% in Snap's latest quarter, fueled entirely by a 37% increase in average revenue per user.
Because it's a free platform for consumers, Snap's growth relies on either gains in its active user base -- something that's just not happening -- or getting better about being sticky enough for folks to lean on the platform more while also making it more compelling for marketers trying to reach Snapchat users.
Snapchat is competing against everyone from Instagram to fresh air for user engagement, and the key here is to improve its monetization without making the jaded youngsters on its platform recoil from the commercialization. Snap's success on that front finds bearish and even neutral analysts boosting their outlooks on the company. Snap continues to trade well below its $17 IPO price, but it has made the jump from mid-single-digits to the preteens in just the past three months. The stock's popularity should at least put an end to Snap and Snapchat as the butt of dot-com jokes, and that could have a favorable impact on the perception of the platform itself with users.
It's not just the stock that's moving. Analysts now see Snap losing half as much money in 2020 as they did when this year began. If you think the stock is moving now, just wait until we get the first whiffs of actual active user growth.
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