Snap (SNAP) stock rose about 7.84% on Monday and closed the trading day at $14.58. Two analysts showed their optimism before the company’s third-quarter earnings results. Snap is scheduled to report its third-quarter results after the closing bell today.
At Monday’s closing price, Snap’s market capitalization was about $20.11 billion. The stock is trading 20.6% below its 52-week high of $18.36 and more than 200% above its 52-week low of $4.82.
Analysts upgraded Snap stock
On Monday, Credit Suisse raised its target price on Snap stock to $21 from $20. The target price of $21 is at a 44% premium from yesterday’s stock price. Credit Suisse analyst Stephen Ju maintained the “outperform” rating on the stock. Reportedly, Ju raised his third-quarter estimates for ad revenues. He also increased Credit Suisse’s earnings forecast for 2019 from $0.26 to $0.28 per share.
Rich Greenfield, LightShed Partners’ analyst, initiated its coverage on Snap with a “buy” rating and a target price of $20. The target price is at a 37.2% premium from the current market price. Last week, MKM Partners also initiated its coverage with a “neutral” rating and a target price of $16.
Lately, many analysts and options traders are betting on Snap stock. Optimism about the company’s rising user base, advertising revenues, and mobile gaming business boosted analysts’ confidence before its earnings. Recently, Bank of America Merrill Lynch, Evercore, Moffett Nathanson, Morgan Stanley, Susquehanna, and Arete upgraded their ratings or target prices on Snap stock.
Snap’s third-quarter expectations
Snap has beaten its earnings for six consecutive quarters. Analysts think that the company will report narrower-than-expected losses in the third quarter. However, Snap expects losses of $0.05 per share—an improvement of 55.6% YoY in the third quarter. The company’s losses would improve to $0.20 per share in 2019—compared to losses of $0.47 per share in 2018. The losses would improve significantly in 2020 at $0.01 per share.
The company expects its revenues to reach $410 million–$435 million in the third quarter. Analysts expect the company’s third-quarter revenues to reach the top end of the guidance. The revenue growth will likely be around 46.1% YoY in the upcoming quarter. We think that Snap’s efforts to grow its user base will drive the revenues. The company expects its daily users to grow to 205 million–207 million for the third quarter. Snap’s third-quarter user base was also 10.8% higher than the same period the previous year. For fiscal 2019 and 2020, analysts expect revenue growth of 43.9% YoY and 34.7% YoY, respectively.
Snap stock is rallying
After struggling in 2018, Snap stock has picked up the pace in 2019. The stock has given impressive returns of more than 164.6% year-to-date, which signals that the downturn has ended. Option traders think that Snap stock could gain at least 17% in the near term. Jim Cramer, CNBC’s Mad Money host, thinks that the stock could hit $18 or $19 if it reports impressive third-quarter earnings results.
Snap stock has a 14-day RSI (relative strength index) score of 46.91, which shows the stock looks neutral at the current level. An RSI reading of more than 70 indicates that a stock is “overbought,” while an RSI level of below 30 indicates that the stock is “oversold.”
On Monday, Snap stock closed near its Bollinger Band middle-range level of $14.83. The level shows that the stock hasn’t been overbought or oversold.
Recently, the stock closed below its 20-day moving average of $14.83, its 50-day moving average of $15.59, and its 100-day moving average of $15.30. Shares trading below the 20-day and 50-day moving average signals bearish sentiments in the stock.
Among the 41 analysts covering Snap stock, 14 have a “buy” rating on the stock—up from 11 last month. About 24 analysts have a “hold” rating on the stock—down from 25 last month. Only three analysts have a “sell” rating on the stock—down from four last month.
Analysts have given Snap an average 12-month target price of $17.64 on the stock. On Monday, the stock was trading at a discount of 17.3% to analysts’ 12-month target price. The company’s median target price is $18.00 as of the same date.
We think that the company has been making efforts to grow and compete with its rivals. Snap has been drawing more users, improving ad revenues, and cutting down on costs to recover its losses and generate revenues. Analysts are also optimistic about the stock’s high growth potential. Better-than-expected third-quarter earnings could push the stock higher.
However, we shouldn’t ignore the fact that technical indicators suggest bearish sentiments around the stock. Notably, Snap is very small compared to Facebook (FB) and Twitter (TWTR) in terms of the user base. Facebook has around 1.6 billion daily users. Meanwhile, Twitter’s daily user base was about 139 million globally in the second quarter.
In the ad business, Snap competes with Alphabet’s (GOOG) unit Google and Facebook, which dominate the global digital ad market. Snap has a share of around 0.5% compared to Google and Facebook, which have a market share of more than 30% and 20%, respectively, according to research firm eMarketer.