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Snap (SNAP) - Get Snap, Inc. Class A Report shares turned lower Friday even after the social-media company was upgraded to buy from neutral at Bank of America Merrill Lynch.

Analyst Justin Post wrote that "ongoing Discover content rollout (8 new shows this fall) gives us higher conviction on realizing potential Snap ARPU [average-revenue-per-user] expansion," and that the fourth quarter is expected to be Snap's "first positive EBITDA quarter, changing the narrative." 

Post also said that recent public CEO comments "suggest better appreciation of need for stock performance."

MKM Partners initiated coverage of Snap with a neutral rating and sees $16 as fair value for the stock. 

"Over the past 12 months, SNAP has been executing well, and we see several near-term incremental catalysts, including benefits from the Android (GOOGL) - Get Alphabet Inc. Class A Report app, premium content partnerships, a gaming platform launch, and sales reorganization," analyst Rohit Kulkarni said in an Oct. 17 note.

"However, we do not believe that SNAP has a long-term sustainable competitive moat, given the history of user growth and engagement lumpiness."

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Kulkarni also cited rising "competitive headwinds from TikTok and Instagram (Threads launch)" as factors that could weigh on the stock.

"Snap is trading at a premium valuation multiple to its peers and expected growth, implying high investor expectations over the near term. [Thus,] we expect near-term choppiness in Snap shares," the analyst wrote.

The stock was trading on Friday 0.58% lower to $13.70. Snap stock has doubled in the past year, based on Thursday's close, and has fallen 25% from its 52-week high of $18.36 in July.

B of A's Post says the recent drop "presents a better entry point to capitalize on Snap's ARPU expansion opportunity." Post has an $18 price target on the stock, which is in line with consensus. 

The stock has 13 buys, 24 holds and three sells, according to Bloomberg data.

Snap reports third-quarter results next week. Wall Street is expecting it to report total daily active users of 206.1 million for the quarter, which would reflect year-over-year growth of 11.3%, according to Bloomberg.

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