Snap stock gained more than 1% in premarket trading on Tuesday. On Tuesday morning, Snap (SNAP) received a boost after Evercore ISI upgraded the stock to “outperform” from “in-line.” Evercore analyst Kevin Rippey also raised the price target to $20 from $18. The analyst upgrade came amid optimism around the company’s efforts to expand in the gaming sector.
Snap’s gaming efforts
Like rival Facebook (FB), Snapchat’s parent is taking a deep dive into the gaming segment. Notably, mobile gaming is increasingly gaining traction. In May, Snap Games announced its first original game, Bitmoji Party. Zynga produced Snap’s other game, Tiny Royale, exclusively for the company.
Facebook users have played FarmVille on the platform for years. In 2016, Facebook launched Instant Games on Messengers. However, users can now access Instant Games through the Gaming tab on Facebook’s app.
According to an August 5 Digiday report, Snap Games would help the company add another revenue stream. This platform would also help Snap diversify from Instagram, which has copied Snapchat’s Stories feature. This report noted that the ads in Snap Games didn’t detract from the gaming experience.
However, Snap Games should face stiff competition from mobile gaming apps, including Epic’s Fortnite and King’s Candy Crush. Apple is also set to unveil its new subscription service for mobile games, Apple Arcade, later this year.
Rippey predicted that Snap could achieve gaming revenues of about $350 million by 2022 at attractive margins.
Snap stock: Revenues and an encouraging user base
According to Evercore, Snap’s fundamentals are strong on the back of its user base and improved revenues. In the second quarter, Snap reported EPS of -$0.06, a narrower loss than analysts’ expected EPS of -$0.10. Snap’s revenue also improved 48% YoY to $388 million, surpassing analysts’ estimate of $360 million by 7.9%.
User base growth and advertising boosted its revenue. Snap added 13 million daily users (or DAUs) and reached 203 million DAUs at the end of the second quarter.
Moreover, the company is highly positive about its revenues and user base for the third quarter. Snap expects to see revenue of $410 million–$435 million for the third quarter. Analysts expect Snap’s revenue to grow 46% YoY for the third quarter. Plus, the company expects its DAU count to rise YoY to 205 million–207 million from 186 million.
Snap stock: Analysts’ recommendations and price movement
Overall, analysts favor a “hold” rating on Snap. Among the 40 analysts, 11 analysts gave it a “buy” rating, 24 gave it a “hold” rating, and five gave it a “sell” rating. Currently, Snap analysts have a 12-month target price of $16.38 on the stock. On August 30, the stock was trading at a discount of 3.4% to analysts’ 12-month target price. Its median target price was $17.00 on that date.
Snap stock closed at $15.83, up 0.3% on August 30. However, the stock is currently trading in the red and declined more than 1% during Tuesday’s trading session at 1:22 PM EDT.
The Dow Jones Industrial Average fell more than 300 points, while the S&P 500 and the Nasdaq Composite were down over 28 and 105 points, respectively, during the trading session. We believe the weak manufacturing sector report severely dented investors’ confidence and led to a huge sell-off in the broader market.
On Sunday, President Trump announced tariffs on Chinese imported goods, which added to the broader market’s decline. However, Snap stock gained around 187.3% year-to-date on August 30.