Snap, Inc. (SNAP – Research Report), parent company of the popular online app Snapchat, got a boost from RBC Capital on April 5, when analyst Mark Mahaney (Track Record & Ratings) upgraded his stance on the company, giving it an ‘Outperform’ rating and upping his price target from $7 to $17. SNAP shares are up to $11.84, a 5% gain in the last session. It’s a sudden shift in position for SNAP, far at variance with the common wisdom on this stock.
The upgrade to SNAP didn’t just come out of nowhere. Mahaney is a five-star analyst, ranked #34 out of 5,174 Wall Street professionals in the TipRanks database. He’s got a voice that investors will listen to, more so when he goes against the grain.
He based his SNAP upgrade on his view that the company is “finally gaining traction” with its Android platform improvements. In his note to investors, Mahaney also pointed out, “…our long-standing appreciation for the high level of product innovation at SNAP, and our belief that SNAP may have reached a fundamental inflection point.”
Mahaney’s note included some specific points to back up his newly bullish view: “SNAP has multiple monetization drivers that will allow it to considerably ramp up its monetization… Snap announced it would begin integrating multi-player gaming, with both original games and third-party developed games… solid execution here should lead to rising engagement and improved monetization…”
Gaming would be a natural progression for the app, building interactive levels on the current story and photo filter functionality which have proven so attractive to Snapchat’s core audience of millennials and teens. As Mahaney points out above, a competently executed gaming segment will lend itself to increased monetization, and quickly return profits on the R&D investment. Snapchat’s image – as fun and playful – works to its advantage here, as targeted gaming monetization may appear less intrusive than advertisements.
With a current share price of $11.84, SNAP is trading near an 8-month high. The stock has been on an uptick since December 21, registering slow gains as the improvements noted by Mahaney have taken hold. His new price target, $17, suggests an eye-popping 43% upside potential to SNAP shares, far higher than the current analyst consensus.
That analyst consensus is, for the moment, a Hold. SNAP shares have 19 hold ratings from the last three months, along with 3 sells and 4 buys. The average price target is $9.78, indicating a downside to the stock of 17%. Mahaney’s upgrade, however, along with the stock’s 137% gain in share price since December, would indicate SNAP’s market position may be changing for the better.
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