Snap is going to soar 40% to its $17 IPO price, analyst says

Stephanie Keith/Getty ImagesSnap CEO Evan Spiegel
  • Snap was up nearly 5% Monday morning after receiving an upgrade at RBC.
  • The report listed five reasons for the upgrade and said Snap shares have a more than 40% upside.
  • Watch Snap trade live.

Snap’s stock price is going to soar back to its initial-public-offering price of $US17 a share, according to one Wall Street analyst.

In a note sent out to clients on Monday, RBC research analyst Mark Mahaney said shares of the camera company have more than 40% upside. He upgraded Snap to “outperform” raised his price target to $US17, a level where shares last traded on in March of last year.

The company went public in March 2017 at $US17 a share, but after an initial spike dropped steadily through the end of 2018 before rebounding over 100% this year. Shares were up nearly 5% early Monday, trading near $US12.40 apiece.

Mahaney’s research note listed five reasons for his upgrade:

1. “Evidence of Stabilisation in Apple iOS and Traction in Android Users”:

Data from third-party provides indicates that Snap’s Apple app rankings have finally stabilised and that its Google Play downloads have picked up.

Snap has also faced a series of “technical” glitches in its Android product which has limited adoption outside of the US (as Android’s user base is more prevalent outside the US). These glitches have now largely been fixed, potentially setting the app up for growth in these regions.

Daily average user growth has been stable at 186-187 million over the past year; however, continued progress on developing both the Apple and Android platforms should return the company to a steady growth trajectory.

2. “Long-Standing Monetisation Upside Potential May Now Be Unlocked”:

Snap’s average revenue per user has long trailed that of Twitter and Facebook. Snap generates just at one-third of Twitter’s revenue per use and one-fifth that of Facebook.

According to Mahaney, Snap has a variety of levers at its disposal to close the gap, including improved measurements of advertisers’ return on investment and traction of its non-skippable ads for the growing premium content business.

3. “Long-Standing Product Differentiation Which May Now Become Appreciated”:

Copycat innovations by Facebook’s Instagram platform, the disappearing “Stories” feature for example, have long hampered Snap’s market position. Whenever Snap generates a successful product, Facebook has simply copied it (while side-stepping the costly unsuccessful innovations).

Despite this, Snap may finally be able to sustainably differentiate its products as social media use shifts increasingly to private messaging,” Mahaney said. This has long been a strength of Snap and is particularly suited to the company’s well known popularity with the critical 18-34 user base. In addition, the camera-focus of the app will further this trend over (ad-heavy) newsfeed-based competitors.

4. “Positive Takeaways From The SNAP Partner Summit”:

Snap first-ever Partner Summit, held in April, also provided strong evidence the company is well on its way to executing its differentiation strategy, according to Mahaney. Borrowing a product angle of Chinese social media apps, Snap is making a strong push into multiplayer gaming. The company is offering third-party games as well as its own original content with the first game being the highly anticipated Bitmoji Party.

5. A Potential Inflection Point:

After a period of operational under-performance, which has significantly weighed on the stock, a renewed product suite of Snap could propel the company forward in the three critical areas of daily average user growth, gross margin expansion, and the reduction of operating losses. Should Snap execute on these financial metrics, the stock is poised to rally to its IPO price of $US17 – representing a 40% premium to Friday’s close, Mahaney said.

Snap has suffered a raft of challenges over the past two years, including strict limits on cash compensation as well as the departure of nearly two dozen senior executives.

Snap was up 124% this year.

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