Why This Analyst Sees Snap on the Rise

Snap Inc. (NYSE: SNAP) shares saw a handy gain on Thursday after a couple of analysts were calling for more upside for the stock. A recent spike in downloads suggests this uptick, and Merrill Lynch is responding in kind.

Merrill’s Justin Post maintained a Neutral rating on Snap, but the firm raised its price objective to $17 from $15, implying an upside of 11.4% from the most recent closing price of $15.26.

In May, Snap’s “gender-face-swap” filter went viral and SnapKit app Yolo reached number one on the iOS download charts. Third-party Snap app data in the second quarter suggests downloads were near record levels.

For advertisers, checks remains mixed, though self-service spend is likely up materially, and Merrill senses more optimism on Snap’s innovation and less concern on user trends. Overall, the brokerage firm anticipates improving user trends and revenue upside in the second quarter, though it expects Snap to remain conservative in its outlook.

Merrill Lynch further detailed in its report:

Snap is a top mobile communication tool, and is early in its opportunity to benefit from smartphone proliferation & growing usage of mobile video. We are constructive on Snap’s demographics and high engagement, and believe ongoing transition to programmatic will enable user monetization to scale. However, competitive pressures are rising as Instagram & WhatsApp are growing their user bases faster than Snap, and there is risk that Snap’s feature set is not building a sustainable competitive moat.

Note that this is just two days after Credit Suisse analyst Stephen Ju reiterated his Outperform rating on Snap and raised his target to $18 from $15. Ju’s target is the second highest out there. His thesis is based on the notion that the company has plenty of opportunity to run more ads, boosting revenue, with significant room for improvement as it can increase the advertising loads to capture additional revenue growth.  Despite Snap’s big run-up this year, most analysts remain under the current target, and Wall Street has yet to endorse what has been driving the shares higher.

Shares of Snap were last seen up about 3% at $15.74, in a 52-week range of $4.82 to $15.94. The consensus price target is $12.24.