Snap stock has been experiencing a remarkable surge, but Wall Street analysts have remained tentative in their assessment of the social media company. In fact, 73% of analysts rate Snap as Neutral, according to FactSet data. However, one analyst team believes that sustainable growth could alleviate these concerns.
The team of analysts at Wells Fargo, led by Ken Gawrelski, released a research report on Sunday upgrading Snap, the parent company of Snapchat, to Overweight from Equal Weight. They have also raised their target stock price from $8 to $22.
According to the analysts, they have observed a positive shift in advertising at Snap for the first time since Apple's privacy initiatives were introduced in April 2021. They explained that reinvestment in ad tech stack, new ads management, and renewed focus have led them to increase their estimates significantly above the street consensus. It is worth noting that Apple's privacy initiatives affected all social media companies by impeding the assessment of online ad effectiveness.
As of Monday, Snap's shares were up 4.8% to $15.82. Looking at recent performance, the stock has risen by 51% from October 31st to the close on Friday, based on Dow Jones Market Data. Overall, the stock has experienced an impressive 77% growth this year.
Wells Fargo highlights multiple factors driving Snap's progress, including a renewed emphasis on cost control that is expected to bolster earnings over the next two years. Additionally, new hires from Meta Platforms and Google are aiding in the rebuilding of Snap's direct-response ad business.
Although the new price target represents a substantial jump compared to the previous one, the analysts acknowledge that in 2021, Snap shares were traded at over $80. They assert that the key to sustained positive growth lies in maintaining a healthy digital ad environment and steady-to-growing engagement in the United States and Canada, allowing for high-teens+ growth beyond the first quarter of 2024.
Despite the recent outperformance of Snap in the market, the predominance of Neutral ratings from analysts reflects Wall Street's cautious stance. The research note emphasizes that sustaining growth beyond favorable revenue comparisons in the fourth quarter and the first quarter will be crucial in changing sentiment.
In conclusion, Snap's stock is displaying strong growth potential, as indicated by Wells Fargo's upgrade and increased price target. With ongoing developments in ad tech and cost control measures, Snap is positioning itself for continued success in the digital advertising space.
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