Snap Inc (NYSE:SNAP) stock tumbled on Monday after one analyst downgraded it in anticipation of the company’s app redesign. Another analyst raised his price target for Snap stock, but it wasn’t enough to balance out the negative sentiment over the new Snapchat app, which hasn’t yet been rolled out to all users.
Price target for Snap stock raised by one firm
In a note on Monday Credit Suisse analyst Stephen Ju reiterated his Outperform rating on Snap stock and said that he raised his price target from $17 to $18 per share. He also offered a preview of the firm’s next earnings report, which is expected sometime in mid-February. He explained that his higher price target for Snap stock was mainly due to changes in the company’s expected tax rate.
However, he also said that for the first time, his advertiser checks revealed “patches of positive advertiser feedback.” He explained that his checks had previously focused on pricing because he had been checking for pressure from the company’s switch to auctions, but his team recently switched back to querying advertisers about budget growth.
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A positive sign for Snap at last?
He also said that for the first time in almost a year, they found signs that advertisers are expanding their budget allocation to Snap beyond just test allocations, a sign that the company could be capturing a bigger share of advertiser budgets. He added that he isn’t ready to increase his estimates for Snap because of the lack of uniformity in their recent checks, but he has a higher level of conviction in his thesis for Snap stock.
He sees the social media firm capturing a larger share of ad budgets and expects Street estimates to stop falling. In the long term, he feels that Snap stock is “now exhibiting asymmetric risk/reward to the upside.” He also described Snap stock as “a scarce asset that offers advertisers access to a coveted younger demographic.” Further, he feels that the company is “a margin expansion story” and sees the compound annual growth rate of the company’s revenue exceeding the growth rate of its cost of sales.
Jefferies analyst Brett Thill moved in the opposite direction on Snap stock on Sunday, downgrading it from Buy to Hold because it had reached his price target of $15 per share. He cited valuation and said he remains optimistic about the company’s platform but needs to see better “fundamental execution.”
Although valuation was the main reason he gave for his downgrade, Thill also anticipates volatility triggered by the new Snapchat app. He said he had spent some time with the new Snapchat app and does see some positives in it, but he also sees some negative aspects with the redesign. As a result, he warned that when the new Snapchat app is rolled out to all users, there could be some “turbulence in usage and adoption.”
Cowen analysts also downgraded Snap app last week, moving from Market Perform to Underperform. The firm found that advertisers gave Snap the lowest rating of all social media firms.