Shares of Snap (SNAP) are on the rise after BTIG analyst Richard Greenfield upgraded Snap to Buy, citing a "surge in spending" in North America on Snapchat from advertisers, who are increasingly focused on its "compelling" return on investment. After meeting with the company's management, his peer at Jefferies also said he came away "generally impressed" with Snap's positive steps on the road to recovery and raised his price target on the shares to $11 from $9.
BUY SNAP: In a research note to investors, BTIG's Greenfield upgraded Snap to Buy from Neutral, with a price target of $15. The analyst acknowledged that "virtually everything that could go wrong for Snapchat over the past couple of years since going public has gone wrong," including being too slow to realize the threat posed by Facebook's (FB) Instagram, moving far too slowly in addressing its Android problems, "poor" senior executive suite, SEC and DoJ investigations into IPO disclosures, and rushing out a major update. Nonetheless, Greenfield sees several reasons to upgrade the stock to Buy. Highlighting the "surge in spending" in North America on Snapchat from advertisers during the second half of 2018, the analyst added that he is increasingly confident that overseas direct response/performance advertisers are taking advantage of low relative bid prices on ad inventory in the U.S., which should benefit Snapchat revenue growth in 2019. In the past few weeks, Greenfield has also noticed a meaningful reduction in clickbait/seedy influencer content in Snapchat's Discover section and an increase in premium/publisher content. Over the coming year, the analyst expects Snapchat to further separate professional and user-generated content within Discover, which will lead to a better user experience and an increase in time spent within Discover and in the attractiveness of Discover to advertisers. Management's "wide array of missteps" over the past two years has not led to a collapse of users or usage, and while the original pitch of growing usage among all demographics may never play out, maintaining its current base in the U.S. and expanding overseas offers "significant growth potential" user-wise, he contended. Further, Greenfield argued that he has been using the newly rebuilt Android app over the past week and performance has been "notably better." Lastly, with a significant number of senior executive hires over the past few months and a clearer strategic road map, he can "feel the improved morale and momentum internally."
'SNAPPING OUT OF IT': In a research note of his own to investors, Jefferies analyst Brent Thill raised his price target for Snap to $11 from $9 after meeting with management. The analyst came away "generally impressed" with the "cohesion and positive steps" on the company's road to recovery, including positive improvements to culture, better ROI for advertisers, better user experience, and better expense controls. After showing a sequentially flat fourth quarter, Thill believes its Apple's (AAPL) iOS tailwinds will continue while Android headwinds will abate, and models adding 7M Daily Active Users throughout 2019. Additionally, Snap continues to improve its relevance of premium content through the Discovery tab using the same optimization and targeting technology as its ad engine, he noted, adding that he believes there is upside for premium content as Snap focuses on partnerships that can bring relevant content to its users and bring incremental audiences for publishers that it cannot reach elsewhere. While "not out of the woods yet" and the stock up about 80% year to date, Thill sees potential upside if continued progress is made. The analyst kept a Hold rating on the name.
PRICE ACTION: In late morning trading, shares of Snap have gained almost 11% to $11.11.
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