A New Tool Could Push Snap Stock to an All-Time High

Social media camera company Snap Inc. (NYSE: SNAP) will hold its annual developer conference on June 11. The meeting will be virtual, of course, but an expected announcement is quite real.

According to a report last week at The Information citing unnamed sources, Snap is preparing to offer a stripped-down version of its platform that partners can embed in their own apps. Social media platforms are quick to duplicate new features that competitors introduce, and Snap’s new openness copies China’s popular WeChat social media site.

Staying ahead of social media competitors is close to a fool’s game. A recent example would be Facebook Inc.’s (NASDAQ: FB) rollout of its Facebook Avatars feature. Like Snap’s Bitmoji, Avatars lets users create cartoon-like images of themselves.

Facebook has to do something to get young people back. Recent polls indicate that Facebook is lagging in popularity among people between the ages of 13 and 22. The most popular social media app among this age group is YouTube, used by 79% of the survey’s respondents, followed by Instagram’s 73% and Snapchat’s 66%. Facebook draws just 58% of that demographic, and Twitter even less, just 44%.

Snap also recognizes that it can’t sit still, and copying WeChat’s embedding feature could really give the stock the shot in the arm that Wall Street is looking for.

What Is This Big Idea?

While details on what Snap has in mind won’t be available until next week, the general idea is pretty simple. Developers will be able to use a Snap-provided toolkit to build a Snapchat-like mini-app right into their own websites.

For example, a cosmetics firm might have access to Snap’s augmented reality feature that would allow users to try different products and share the results with friends. That could be done in the Snap app itself, but a company like, say, Ulta Beauty, likely would be willing to pay for the ability to corral a customer who wants to try several shades of lipstick and get her friends involved in making a choice.

A skilled marketer not only gets a chance to sell a product to a single customer but to all the people in the customer’s circle. Nabbing this kind of mindshare is worth serious money, and Snapchat will be paid to provide the platform.

How Much Help Does Snap Need?

Snap reported a net loss of $0.08 per share and $462 million in revenue for its first quarter of 2020. Consensus estimates had called for a net loss of $0.07 per share and $431.43 million in revenue. In the same period of last year, Snap reported a $0.10 per share net loss and revenue of $320.43 million.

During the quarter, daily active users increased from 190 million in the first quarter of last year to 229 million. On average, more than 4 billion Snaps were created each day in the first quarter of 2020. The coronavirus pandemic lockdown likely has accelerated this user growth. With schools closed, young people have been spending more time on their devices.

Average revenue per user increased 20% year over year to $2.02. As a result of these numbers, many analysts moved the stock to their Buy categories. On Tuesday, the stock reached a level it hadn’t seen in more than two years.

The momentum is there. In the fickle world of social media though, where user counts and revenue growth are the most critical components by which a company is judged, introducing a new revenue generator is a pretty big deal.

Analysts have been cautious about setting a price target on Snap stock. Ten of 12 firms either reiterated or raised their ratings on the stock to the equivalent of Buy, and 11 of 12 raised their price targets. On Monday, Deutsche Bank lifted its rating from Hold to Buy and put a price target of $24 on the stock, the highest number yet.

Snap’s all-time high is around $29.50 a share, posted on the day the stock came public in March of 2017. Shares traded $10 or so below that level Wednesday afternoon.