Snap (NYSE: SNAP) Steadies Itself For The Next Leg Up

After a 90% rally in just two months, it’s only natural that shares of social media stalwart Snap (NYSE: SNAP) would want to take a breather. Since printing an all-time high a fortnight ago there’s been some end-of-year profit-taking that’s taken shares down about 10%.

Considering the run they’ve had it's nothing to be worried about and if anything offers an interesting entry point for investors still on the sidelines. For a company that came into 2020 still below their 2017 IPO price, they've certainly managed to take control of their own destiny in the past twelve, if not nine, months. Since March alone, shares have tacked on a staggering 500% and some change. That’s a phenomenal amount of momentum to be taking with them into 2021 and the good news for investors is that Wall Street thinks there's plenty more room to the upside.

Fresh Upgrades

At the start of yesterday’s session, Goldman Sachs was out with a 50% increase to their price target on Snap stock, moving it from $47 to $70, suggesting upside of about the same from where shares closed on Monday. Goldman analyst Heath Terry is bullish on the faster revenue growth helping to beat analyst expectations in coming quarters.

In a note to clients he said "Snap's Spotlight product, new ad campaign objectives and bid types, and the Unity partnership, particularly Unity Ads' inclusion into the Snap Audience Network (SAN), have the potential to drive further momentum in engagement growth as well as provide valuable scale to advertisers." He added that the firm's recent ad checks and third-party data "suggest outperformance relative to the company's initial guidance for 4Q, acceleration we believe is sustainable beyond the current quarter."

Back in October, investors got a sense of just how capable Snap is of beating the consensus, when their Q3 earnings report comfortably beat expectations, driven largely by record user numbers. Goldman’s bullish tone this week mirrors that of Cleveland Research who initiated Snap at a Buy rating in the week before Christmas. Their price target of $65 will do no harm at all to the bull’s thesis, and in fact has been made all the more attractive with the subsequent dip seen in shares.

The Year Ahead

Goldman is looking for 58% year on year growth in revenue, and Snap’s next earnings report, due in February, will need to impress. They’ve massively outperformed their social media peers like Twitter (NYSE: TWTR) and Facebook (NASDAQ: FB) this year, logging more than 200% of gains compared to 70% and 35% from the other two respectively. Any sign of fundamental weakness could quickly bring shares back in line with the rest of the social media industry, but recent indications suggest they’ve got too much going for them for that to happen.

Snap appears to be in that perfect kind of situation where extreme growth in the share price is underlined by impressive performance in the fundamentals. Not every tech or social media company can boast of having a similar set-up which makes Snap all the more attractive. It’s worth noting that for all that the company is still not profitable and trades at more than 30x sales but so far this year the stock’s performance has justified the hype.

Shares popped more than 6% off the back of Goldman’s note yesterday and are coming off the low of this recent dip. That should provide some solid near-term support while the stock continues to consolidate after a blistering 2020 run and gets ready to continue exceeding expectations in 2021.