Snap (NYSE:SNAP) stock has been riding high in today’s trading session. It was up over 7% as of 12:10 PM ET. It jumped after two Wall Street analysts expressed optimism about the company, according to CNBC. Analysts at Jefferies and Cowen have raised their respective ratings and price targets on SNAP.
On January 8, Snap stock closed down by 2.1% and ended the trading day at $16.67. At that closing price, Snap’s market cap was about $24 billion. The stock was trading 9.2% below its 52-week high of $18.36 and over 196% above its 52-week low of $5.63.
On January 9, Jefferies upgraded Snap stock to a “buy” from a “hold” rating, according to CNBC. Jefferies analyst Brent Thill also lifted his price target to $21 from $17. This target is around a 26% premium to Wednesday’s stock price. Thill expects Snap stock to rally in 2020. He said to clients that Snap’s “accelerating user growth, particularly internationally,” should push the stock higher in 2020. Per TheStreet’s report, he thinks Snap’s “strengthening ecosystem can drive upside to user and revenue growth in 2020.” The analyst expects the company’s ad platform to fuel revenue growth of over 30% in the next three years.
The CNBC report also stated that Jefferies had downgraded online retailer eBay (NASDAQ:EBAY) to an “underperform” from a “hold” rating. Jefferies also raised its price target on Apple (NASDAQ:AAPL) to $350 from $285 today.
Apart from Jefferies, Cowen has also upgraded Snap to an “outperform” from a “market perform” rating. Cowen analyst John Blackledge increased his price target on the stock to $20 from $16. This price target marks a 20% premium to Wednesday’s market price.
As per TheStreet, Cowen expects Snap to rebound in 2020, according to a survey from ad buyers and branding trends. Cowen told investors that about 10% of ad buyers would choose Snap for their branding campaigns. Cowen also mentioned that these campaigns would target users aged 13–34. Blackledge indicated that 6% of ad buyers viewed Snap “as a platform that could emerge or is emerging as a meaningful part of their digital spend.”
Snap stock is on a growth trajectory
The upgrade in Snap stock suggests that the company’s revenue growth is the result of its robust user base. The company’s consistent progress in lowering costs has helped it boost its margins. Its Android redesign and new augmented reality lenses have resulted in improved engagement and an enhanced user experience. The company’s ad platform is also improving.
During the third quarter, Snap posted EPS of -$0.04, which was narrower than Wall Street’s expectations. The figure also marked an improvement of around 67% from its EPS of -$0.12 in the previous year’s period. Higher revenue driven by robust daily usage and improved margins helped the company lessen its losses. Snap’s revenue topped Wall Street’s estimate and also rose around 50% YoY in the third quarter. The social media giant ended the third quarter with total DAUs (daily active user) of 210 million. Snapchat’s DAUs grew by 7 million sequentially in the third quarter. However, its rate of growth in daily users depleted compared to the previous quarters.
Analysts were extremely positive about Snap’s growth trends even before its third-quarter earnings results. Analysts believed Snap’s rising user base, higher ad revenue, and focus on mobile gaming would boost its stock.
Snap is scheduled to report its fourth-quarter and 2019 earnings results on February 4. The Snapchat parent expects its revenue to grow in the range of $540 million–$560 million. Analysts expect higher revenue of $562.8 million, up around 44.4% YoY. However, one fewer week in the holiday season this year than last year could mean lower fourth-quarter revenue. Nevertheless, we’re optimistic about the company’s efforts to grow its advertising revenue. Snap expects its DAUs to increase to 214 million–215 million in the fourth quarter, around 2% higher than its third-quarter levels.
Further, Snap expects its adjusted EBITDA to turn positive in the fourth quarter. The company expects its adjusted EBITDA to break even and grow to $20 million by the fourth quarter.
In 2019, analysts expect Snap’s revenue to rise 45.5% YoY, up from its 43.1% YoY revenue growth rate in 2018. Its revenue growth is likely to drop to 36.2% in 2020. Meanwhile, analysts are expecting EPS of -$0.19 for it in 2019, a significant improvement from its 2018 EPS of -$0.47. Analysts expect Snap to recover its losses and reach EPS of $0.02 in 2020.
Analysts’ recommendations and Snap’s target price
Among the 41 analysts covering Snap stock, 19 have “buy” ratings, up from 16 last month. About 20 analysts have “hold” ratings on the stock, down from 23 last month. Two analysts have “sell” ratings on the stock, unchanged from last month. As of January 8, analysts have given SNAP a 12-month average target price of $18.3. Based on that day’s closing price, this target represents a potential upside of 5.3%.
Reading the technical levels
Snap’s 14-day RSI (relative strength index) score is 66.18, which indicates that investors are currently neutral on its stock, but it’s nearing “overbought” territory.
On January 8, the stock closed near its Bollinger Band upper range level of 17.39. This value suggests that it’s overbought.
Considering analysts’ views and the technical indicators, we think Snap stock has the potential to rise in 2020.