Trading near $21 on Wednesday, Snap Inc. (NYSE: SNAP) is close to its 52-week high of $21.14. But many analysts still see an upside for the Santa Monica, Calif.-based social media company, which could also get a boost from its partner summit this week.
Last week, Deutsche Bank boosted its price target from $18 to $24. The average 12-month price target for Snap is $18.05, but it may be time for analysts to take another look at their valuations.
Deutsche also boosted Snap’s rating to the Buy category. Out of 37 analysts following the stock, 26 recommend Buy, 10 Hold and one Sell.
In April, a number of research firms boosted their price targets for the stock, including Morgan Stanley, JMP Securities, Cowen and UBS Group.
The Case for Snap
Snap’s marquee application is a popular social media platform. Snapchat is a camera app that allows users to share photos and videos with friends and family. It’s known for its creative filters that allow users to transform their appearance and their surroundings.
Globally, Facebook (NASDAQ: FB) is the most popular social media platform, with 2.5 billion active users, according to the data firm Statista. TikTok and its Chinese counterpart, Douyin, rank at No. 7, with 800 million users. Snapchat trails with 398 million active users.
In its first quarter earnings report, Snap said daily active users (DAU) increased to 229 million compared to 190 million in the first quarter last year. On average, more than 4 billion Snaps were created each day in the first quarter of 2020.
Analysts expect more user growth when the second quarter results come out. With much of America under lockdown orders in the spring, the expectation is that app usage increased. With most schools closed, students were likely spending even more time on their phones. And Snap is the perfect communication vehicle for kids unable to visit with classmates IRL (in real life).
But social media is a competitive space. How does Snap keep its users engaged, especially when they are being drawn to other hot apps, such as TikTok? Innovation must be a constant, experts say.
24/7 Wall St.Snap held its first partner summit last year, where it announced new features and initiatives for partners. Due to the coronavirus pandemic, this year’s event will be held online, on June 11.
Like other tech companies, Snap uses these events to launch products and generate buzz. Facebook cancelled its F8 developer conference, which had been scheduled for May. Apple’s Worldwide Developers Conference will be held online later this month, June 22-26.
A Stripped-Down Snap
Snap watchers expect some important announcements from the company this year too. According to a report last week at The Information citing unnamed sources, Snap is preparing to offer a stripped-down version of its platform that partners can embed in their own apps. Social media platforms are quick to duplicate new features that competitors introduce, and Snap’s new openness copies China’s popular WeChat social media site.
Currently Snapchat’s innovative filters and tools are only available on its own app. According to the report, the new feature would let developers use a Snap-provided toolkit to build a Snapchat-like mini-app right into their own websites.
Marketers could customize Snap filters to promote products and services on their own e-commerce platforms. For example, a cosmetics maker might allow users to “try on” shades of lipstick using Snapchat filters. This could presumably be tied into promotions on Snapchat too.
This could be important since Snap generates revenue primarily through advertising. If successful, the new tool would be a new revenue stream.
In that last earnings report, Snap said average revenue per user (ARPU) increased by 20% to $2.02, compared to the first quarter from last year. The company had a net loss of $0.08 per share and $462 million in revenue, compared with consensus estimates that called for a net loss of $0.07 per share and $431.43 million in revenue. The same period from last year had a net loss of $0.10 per share and $320.43 million in revenue.
Snap Enters the Politics Fray
You might not expect Snapchat to be a very political platform. But the company last week jumped into the controversy over President Trump’s use of social media.
For years, critics have said the president violates rules of conduct on social platforms. Twitter recently took a stand by adding a fact-check label to one Trump tweet, and a warning label on another, which critics said could be an incitement to violence.
In response, the president threatened to “strongly regulate” social media companies.
Differentiating itself from Twitter, Facebook made a public point of not interfering with the president’s messages on its platform. But the company got considerable blowback from employees and the media.
Snap jumped into the conversation with the announcement that it would no longer promote the president’s Snapchat account in its Discover section. Snapchat uses this section to promote certain users (such as celebrities or news publishers).
“We will not amplify voices who incite racial violence and injustice by giving them free promotion on Discover,” the company told Business Insider. President Trump’s account is still visible and searchable on Snapchat, for those who want to find or subscribe to it.
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