Snap Inc. (NYSE:SNAP) stock has done very well in 2019. SNAP stock price has rallied 178%. Among stocks with a market capitalization over $10 billion, Snap Inc stock has been the fourth-best performer in 2019. Only Array BioPharma (NASDAQ:ARRY), Sea Limited (NYSE:SE), and Roku (NASDAQ:ROKU) have been better.
To be honest, I’ve misread SNAP stock. I thought in April that the gains had gone too far, and doubled down on that theory last month. That said, I’ve understood why optimism toward SNAP has risen. Its user growth is starting to show signs of life after flat-lining in 2018. Its disastrous Android app redesign has been fixed. And Snap, as I’ve argued for some time, has a path to significantly improve the monetization of its users, particularly overseas.
Of late, Wall Street analysts have picked up on that bull case. At least four firms have upgraded SNAP stock , and one of those upgrades sparked a big jump in SNAP stock price. But it’s hard not to wonder if the Street is late to the party and if its sudden interest in Snapchat stock might signal a top. If long-bearish analysts have turned bullish, too, who can still turn bullish on Snap stock?
Snap Gets Upgraded
At least three analysts have changed their tune on SNAP stock in just the last month. In mid-June, Aegis Capital raised its target price on SNAP stock to $17 and upgraded SNAP to a “buy.” The firm increased its revenue estimates, citing higher ad sales and increased use of the Android app. The firm had argued only a few months earlier that CEO Evan Spiegel should sell the company, but said in its recent note that it had decided to “walk back” that argument.
The same day, well-respected tech analyst Rich Greenfield of BTIG Research upgraded SNAP stock as well, setting a price target of $20. That target became the highest among analysts covering the stock, though it’s “only” about 39% above the current levels of SNAP stock. Greenfield, like Aegis, increased his top-line outlook for the company, also citing the improved monetization of its users and the growth of the Android app, in an interview with Yahoo! Finance.
The two upgrades sparked a nearly 10% jump in SNAP stock price, propelling it to a 14-month high. Two weeks later, a third firm, MoffettNathanson, highlighted what it called the potential “Cinderella story” of Snap Inc, and projected a blowout Q2 earnings report in early August, driven by faster-than-expected user growth.
Moffett analyst Michael Nathanson didn’t upgrade SNAP stock, citing valuation. But as recently as October, the same firm had a $6.50 price target on Snapchat stock and was questioning if it would need to raise capital. The firm’s change in sentiment is significant, even if kept a ‘neutral’ rating on the shares.
Finally, Goldman Sachs jumped on the bandwagon last week, moving SNAP stock to a ‘buy’ with a price target of $18. That firm cited the same improving user numbers as many of its peers.
Has SNAP Stock Price Reached a Top?
MoffettNathanson’s reversal highlights the risk to SNAP stock now. Analysts turned bearish on SNAP near its bottom: indeed, the stock hit an all-time low less than three months after MoffettNathanson’s October note.
Are the same analysts turning bullish at the top of SNAP stock price? It wouldn’t be surprising, and there’s evidence that it might be the case. SNAP stock actually has weakened modestly since Aegis and BTIG upgraded it in mid-June.
The story analysts are telling isn’t really surprising the bull case for SNAP even at the time of its IPO was based on user growth combined with gains in its revenue per user. The fact that Snap Inc is making progress isn’t a secret, either: the company posted strong Q1 earnings.
Meanwhile, Snap’s better outlook is priced into Snapchat stock, at least to some extent. Again, the SNAP stock price has risen 180%+ in about six months. It’s added over $13 billion in market value over that period. Snapchat’s performance may have improved, but its valuation now is a question mark.
Indeed, that’s the case I made at $10 and then at $12. With SNAP stock above $15, the reasons for concern seem stronger. SNAP trades at more than eight times analysts’ average 2020 revenue estimate, and it’s not expected to report profits for at least another two years. Competition for advertising will remain fierce: Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), and Alphabet (NASDAQ:GOOG,NASDAQ:GOOGL) aren’t going anywhere.
The story analysts are telling may be right, as Snap Inc is improving. But SNAP stock price has tripled from its December lows, so a lot of improvement already is priced into Snapchat stock.
As of this writing, Vince Martin has no positions in any securities mentioned.