With TikTok, X and Instagram capturing so much attention, Snap’s (NYSE:SNAP) Snapchat app has practically been left out of the conversation. Yet, several experts on Wall Street evidently see the potential for Snap stock to head higher over the next 12 months.
Granted, it’s easy to call for more upside when the share price has already doubled since late September. Still, as investors prepare their year-end shopping lists and seek out next year’s best picks, it’s worthwhile to consider what analysts have to say about Snap.
Upgrades are more important than price targets
With SNAP stock having rallied from $8 and change in September to roughly $17 recently, analysts have practically no choice except to raise their price targets. Consequently, it’s not too surprising that Jefferies analyst James Heaney lifted his price target on Snap shares from $12 to $16.
More importantly, Heaney upgraded SNAP stock from Hold to Buy. The Jefferies analyst noted strength in direct-response (DR) advertising on Snapchat, in which advertisements encourage the app’s users to take action (i.e., buy a product) immediately.
“Recent improvements to the DR platform (70-75% of rev) should continue driving better advertiser performance and faster budget growth going forward,” Heaney explained.
Furthermore, Snap could get a revenue boost from DR ads and other advertisements due to issues with X and its controversial owner, Elon Musk. If advertisers leave X, some of them might switch to Snapchat.
In any event, the overall sentiment toward Snap seems to be improving since October, when the company declined to provide official revenue guidance due to the “unpredictable nature of war.” The company “observed pauses in spending” on “advertising campaigns immediately following the onset of the war in the Middle East” at the time. As a result, Snap’s management perceived a “risk that these pauses could persist or increase in magnitude remains.”
War is indeed unpredictable. Nevertheless, as the year comes to a close, it looks like advertisers will continue to use Snapchat irrespective of instability in the Middle East.
Circling back to Heaney, SNAP stock already broke above his $16 price target, so that’s not necessarily the share price that investors should look for in 2024. As for Heaney’s upgrade, it makes sense, but contrarian investors might wonder whether all of the positive commentary has already been priced into the shares.
Benefiting from a “healthy” ad environment
Also in the bull camp is Wells Fargo (NYSE:WFC) analyst Ken Gawrelski, who upgraded SNAP stock from Equal Weight to Overweight and raised his price target from $8 to $22. That’s a gigantic price-target leap, but again, analysts must follow the current prices of stocks.
Evidently, Gawrelski isn’t overly concerned about war suppressing advertising revenue in the coming quarters.
“Key to the sustained positive inflection in Snap shares is continuation of a healthy digital ad environment & steady-to-growing United States/Canada engagement enabling high-teens+ growth beyond 1Q24,” the Wells Fargo analyst asserted.
Gawrelski is also bullish on Snap’s “reinvestment in ad tech stack, new ads management, and renewed focus.” Unfortunately, it will be a couple of months before Snap gets another chance to demonstrate ad-boosted top-line growth in its next quarterly earnings report.
In a similar move to Gawrelski’s, Guggenheim analyst Michael Morris lifted his rating on SNAP stock from Neutral to Buy and raised his price target on the shares from $9 to $23. According to Barron’s, Morris predicted that “demand for digital advertising is poised to increase and that the current consensus doesn’t appreciate the potential.”
AI tools could boost Snap’s revenue
Morris’ comment echoes Gawrelski vision of a “healthy digital ad environment.” Perhaps Snap can benefit from this environment with its premium Snapchat+ subscription tier, which includes artificial intelligence-enabled features. Impressively, Snapchat+ generated $20 million in net revenue for the first time in November.
Not long ago, Snap disclosed that the subscriber base for Snapchat+ had reached 7 million. In the “medium term,” Snap is targeting 10 million Snapchat+ users. Thus, while this may be difficult to quantify, it appears that adding AI tools into the mix will help Snapchat+ generate robust revenue for Snap.
Snap clearly isn’t afraid to escalate the AI-arms race in social media, as Snapchat+ just added some new AI-powered features. The new features include the ability to create and send AI-generated images.
Everything seems to point to an auspicious 2024 for Snapchat and its shareholders. The primary concern, as I see it, is that SNAP stock traders have already priced in the company’s future growth. Nonetheless, adding a few Snap shares to one’s portfolio isn’t the worst idea in the world, especially if you’re looking to diversify your holdings with social-media stocks.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
