Why Wedbush Is Bucking the Trend on Snap
Snap shares made a handy gain early Tuesday after one key analyst decided to upgrade the stock. Is this the signal for a long-awaited turnaround?
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Snap Inc. (NYSE: SNAP) shares made a handy gain early Tuesday after one key analyst decided to upgrade the stock. For the most part analysts are betting against Snap (or at least are on the sidelines) and have been since the beginning. This call sees the stock rising by over 25%, and it could be the signal for a long-awaited turnaround.
Wedbush upgraded the stock to Outperform from Neutral and raised its price target to $12.25 from $11.50, implying an upside of roughly 26% from the most recent closing price of $9.74.
The firm noted that decelerating growth trends, fierce competition for user mindshare and advertiser dollars, and a history of being hugely unprofitable have kept it on the sidelines, but recent management changes and improved execution have led to this update in coverage.
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Wedbush went on to say in its report:
Since we initiated coverage of Snap Inc. in August of 2017, we have struggled to identify a well-articulated and clear strategy from the company, limiting our ability to forecast the timing of future profitability. Stock-based compensation as a percentage of revenue remains very high, tracking at 70% over the trailing twelve months. Free cash flow burn has also continued, totaling $234 million in Q2, up from $229 million in the prior year quarter, despite a year-over-year revenue increase of $81 million. These factors have made us reticent to recommend shares of Snap Inc., particularly with the original management in place. The company has a significant opportunity to align its strategic priorities with those of its shareholders and to articulate those goals in a much more consistent and clear way. In our view, the change in top management positions the company to significantly improve its execution, and its valuation suggests upside from current levels.
Tim Stone was hired in May of this year to take over the chief financial officer role from Drew Vollero, and as of August 15, has fully transitioned to the new role. Prior to joining Snap, Stone spent nearly two decades at Amazon, and served in various financial and leadership positions, including as CFO of Amazon Web Services and Digital Content.
It was announced on Monday that the chief strategy officer, Imran Khan, would be leaving Snap. Wedbush believes that the departure of Khan will make Stone both more visible and more vital. Additionally, from this move, the firm has confidence that corporate governance will improve and have a measurable impact on the development of and articulation of the company’s strategy.
Shares of Snap closed Monday at $9.74, with a consensus analyst price target of $11.80 and a 52-week range of $9.55 to $21.22. Following the announcement, the stock was up about 2% at $9.92 in early trading indications Tuesday.
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Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
