Snap: Analysts are becoming bullish, should that be you too?

Analysts get bullish at the popular social media platform administrator, Snap Inc (NYSE :). After a tumultuous two years since its IPO in 2017, it seems that the investor community has started what Snap is doing to turn its business around.

Snap shares have risen 154% this year and 193% lower than in December, making it the best player in the index. The shares closed 1.5% on $ 14.52 on Friday.

The photo sharing app & # 39; s Snapchat operator gains in control after a disastrous 2018, when the number of users shrank, several top drivers left and teenagers didn't like the app's new design.

According to Nomura Instinet, one of the most bullish research houses on Snap stock, new users of this social messaging app can now double the company's own prediction.

Downloads for Snapchat continued to grow strongly in August, by 21% compared to a year ago, according to a monthly data tracker from Nomura. At this rate, analyst Mark Kelley estimated in a recent note, Snap will add between 5.5 and 10 million users this quarter, well in excess of the company's 2-4 million projection.

Previously, Stifel Snap upgraded to buy from the hold and walked the price target to $ 17 from $ 13, with his analyst John Egbert who said he is increasingly optimistic about Snap's growth prospects in the second half of 2019 and beyond.

Morgan Stanley, in a note last week, upgraded Snap to "equal weight" from "underweight", citing faster growth in advertising revenue and improved discipline in managing operating costs. Said MS:

"At a high level, we have so far underestimated Snap & # 39; s stronger top and bottom line execution and ability to drive growth and upward revisions."

Snap & # 39; s gaming platform and new augmented reality features that allow users to add images to their hands, feet, or bodies are among the features that have been very popular in recent months, in addition to face-distorting lenses and a gender lens. that turns a male face into a female face, and vice versa.

Instagram Threat

Snap is improving and user statistics have undoubtedly played a major role in the outperformance of its shares this year, but the regulatory oversight faced by major social media companies is another big positive for the company.

An app with a clear and defined audience and with little scope for abuse is in a much better position to withstand potential regulatory changes worldwide than colossi such as Facebook Inc. (NASDAQ 🙂 and Alphabet & # 39; s Google (NASDAQ 🙂 – the heavyweights on social media are coming under increasingly intensive surveillance .

But despite changing analyst expectations, Facebook-owned Instagram continues to pose a major competitive threat to Snap and its future growth. The shares fell by 7.6% on October 3 after Instagram launched a new mobile application called & # 39; Threads & # 39; had rolled out allowing users to stay in close contact with a small circle of people.

That is very similar to the domain that Snap is trying to earn by making close communities among friends. In 2016, Instagram copied the popular & # 39; stories & # 39; product from Snapchat for posting photo and video updates that disappear.

And despite this year's strong comeback, investors should not forget that Snap shares are still trading more than 40% lower than the level reached shortly after the IPO in 2017. Those who are currently betting on Snap shares have just lost their losses, in addition to missing other opportunities to make money.

Bottom Line

In our opinion, Snap remains a very volatile stock and is not suitable for long-term investors due to its uneven user involvement, rising costs and higher turnover among its top managers. Instagram, owned by much larger Facebook rival, remains an existential threat to Snap that is unlikely to disappear. Due to these uncertainties, we do not recommend that risk avoiding investors purchase these shares.

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