Morgan Stanley Loves Snap Stock: Should You Feel the Same?

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Morgan Stanley analysts did Snap (NYSE:SNAP) investors a big favor on Oct. 4 when they upgraded SNAP stock to equal-weight from underweight while raising its 12-month target price from $14 to $17.

Morgan Stanley Loves Snap Stock: Should You Feel the Same?

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Morgan Stanley has three reasons why it believes in Snapchat stock. Should you feel the same?

Advertisers Spending More

Morgan Stanley analyst Brian Nowak believes that Snapchat is doing a good job educating advertisers on how best to use the social media platform to reach and engage its target customer. As a result of this education, advertisers are spending more, leading to significant advertiser growth.

That’s great news if you own SNAP stock. 

And Morgan Stanley is not the only broker high on SNAP. Nomura Instinet believes good things are happening at the social media app.

Higher User Growth

According to Nomura’s estimates, Snapchat’s user growth is set to take off. In August, downloads for the Snapchat app increased by 21%. It now projects that Snapchat could reach as many as 10 million users in the latest quarter, well ahead of Snap’s original estimate of four million users.

Over at Stifel Financial, it recently upgraded SNAP stock to buy from hold, while increasing its 12-month SNAP stock price target by $4 to $17.

The analyst trend appears to be getting more favorable. A total of 12 analysts have a buy or overweight rating, another 26 have a hold rating, and just two have an underweight or sell rating. 

In terms of the average target price, it’s currently $17.62, providing investors with 21% upside over the next year. 

Improving Execution and Financial Control

Although Morgan Stanley is still concerned about Snapchat’s daily active user growth slowing in 2020, it still believes that some of the financial and operational discipline introduced by the company in the past year is starting to pay dividends. 

In Nowak’s words, “We have growing confidence that SNAP’s management team remains laser-focused on improving efficiency, reducing costs, implementing stronger budgeting processes … and individual manager-level cost accountability,” He expanded further in a note to clients: At a high level … we have underestimated Snap’s stronger top and bottom-line execution and ability to drive growth and upward revisions.”

Also, Morgan Stanley sees Snapchat’s average revenue-per-user improving relative to its peers over the next few years. With higher margins, the company’s pathway to profitability is getting more evident by the day. 

The Bottom Line on SNAP Stock

From Morgan Stanley’s perspective, SNAP stock still isn’t worthy of a buy or overweight rating. To get that, the company has to continue to grow its daily active users while delivering innovation and original content. 

Until it does that, Morgan Stanley is likely to remain on the fence. 

As for me, I see projects like the company’s launch of Spectacles 3, as an exercise in vanity that does little to advance the monetization of its user base. And that’s too bad, because as I said in August, “Spiegel (CEO Evan] has done an excellent job focusing the company on monetizing its social media app while at the same time cutting expenses.”

As a result of this vanity project, I remain more enthusiastic about Pinterest (NYSE:PINS) for the simple reason that it has a better pathway to profitability. 

Perhaps I’ll be proven wrong. 

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2019/10/morgan-stanley-loves-snap-stock-should-you-feel-the-same/.

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