At long last, can investors count on Snap (SNAP) stock?
The company went public to much fanfare a few years ago, but generally has been a flop on the market. The company has battled app-design pushback, increased competition from Instagram and has lacked a clear road to sustainable revenue and profitability. But investors seem confident the company is figuring it out, as its stock has risen more than 100% since the beginning of 2019.
Indeed, Pivotal analyst Michael Levine sees progress, as he upgraded his rating on the stock from Hold to Buy, while also raising his price target to $17.25 (from $13.25). (To watch Levine’s track record, click here)
Last month, the company released its updated Android app, which was built to improve speed and lagginess. Levine says the release has spurred user growth, and is “confident the Android launch…is doing well.” Android remains an important market as it is the most popular operating system of the US, with Snap struggling to gain traction outside of the Western world.
Snap’s major revenue driver is through ad sales, which Levine thinks “is moving in the right direction.” The analyst says he continues “to hear glowing things about the organization under Jeremi Gorman and suspect that quarter at 2h19 are shaping up well,” with Levine seeing “better focus on ad agency relationships and a category-focused sales team,” which suggests “alignment is moving in the right direction.”
Levine believes some potential ad buyers rethought plans of buying on Snap after the IPO because of competition from Instagram and poor quarterly reports on user trends. But Levine says this “dynamic flows in both directions” and suspects “that it will hold true on the upside as well – particularly heading into the seasonally stronger 2H of the year.”
Snap had branded itself as a camera company pre-IPO, but seemingly is moving away from that image. The company launched Spectacles — its camera-glasses — in 2016, and followed that with version 2 last year. But the company and investors have generally been focused on its app.
Overall, Snapchat reported 190 million daily active users in 1Q19, up 4 million users since 4Q18, but down year-over-year. The company has struggled to penetrate the international market, with a near-majority of its users coming from the domestic market; this is in comparison to Facebook, which has a majority international userbase. On one hand, this is a struggle for investors, as the company must do a better job attracting users from other parts of the world. However, the US market is strongest in terms of per-user revenue, as advertisers pay a premium to target a more-wealthy demographic.
All in all, Snap is doing its best to show investors it is a worthwhile investment. But while shares are up big this year, the analyst community isn’t quite ready. TipRanks analysis of 27 analyst ratings shows a consensus Hold rating, with six analysts recommending Buy, 18 recommending Hold and three Selling. The avereage among these analysts stand at $12.45, which implies a 10% downside from where the stock is currently trading. (See SNAP’s price targets and analyst ratings on TipRanks)