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Snap Rises After MoffettNathanson Upgrade to Buy

Snap 'reflects current macroeconomic conditions supportive of elevated valuations for high growth stocks,' MoffettNathanson said, upgrading the stock.
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Snap  (SNAP) - Get Snap Inc. Class A Report shares rose after MoffettNathanson analysts upgraded their rating for the photo-focused social-media company to buy from neutral and lifted their share-price target to $57 from $39.

The move is based on a valuation of 10 times revenue versus 7 times previously. 

“We continue to believe Snap results will surprise on the upside, as we are 15% above consensus 2024 revenue and 30% above consensus 2024 non-GAAP operating income,” the analysts wrote in a commentary.

“We are not revising our Snap estimates [now], but we continue to project strong revenue growth and profitability going forward. 

"Our upgrade reflects current macroeconomic conditions supportive of elevated valuations for high growth stocks.”

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In addition, “there is further upside potential for Snap to benefit from e-commerce and [small- and medium-sized business] marketer tailwinds driving the broader online advertising sector.”

Snap shares recently traded at $49.93, up 1.8%. They have nearly tripled (up 175%) over the past year amid investor excitement over social-media companies during the covid pandemic.

“Despite covid-19 weighing on advertising demand generally this year, we expect Snap will end 2020 with 44% revenue growth, nearly the same level as in 2019,” the MoffettNathanson analysts said.

“With an expected cyclical recovery in advertising spending in 2021, we estimate Snap’s revenue will rise by 54% next year and continue to increase in the 30% range annually through 2024.”

Also, “we have been impressed by Snap’s ability to generate strong top-line results while keeping expenses growing at a relatively modest 20% rate.”