Snap Stock Is Fast Becoming A Darling Of Wall Street

For a company whose stock fell close to 80% in the months after their 2017 IPO, social media giant Snap (NYSE: SNAP) isn’t doing too bad these days. With an eye-popping rally of more than 700% in the past twelve months, they’ve firmly re-established themselves as the hot tech stock they’ve always wanted to be.

They’re currently up close to 30% on the year already and look set to continue 2021 at the same pace that they’ve started it. The biggest catalyst for shares so far this year has been the company's Q4 earnings which were reported earlier this month. Revenue was up a juicy 62% on the year while EPS ticked ever closer to a consistent profit at -$0.08. For the record, non-GAAP EPS was firmly in the black.

Outside of the topline and bottom-line numbers, most of the core metrics improved favorably as well. Daily active users increased 22% on the year, as did operating cash flow. Net loss for the quarter fell more than 50% compared to the same quarter in 2019, confirming the solid momentum currently underway.

Fresh Upgrades

In tandem with an impressive report that closed the chapter on 2020, there have been several sell-side upgrades in recent weeks which are sure to get investors excited for 2021’s story.

Piper Sandler initiated coverage of Snap with an Overweight rating at the end of January, even before Q4’s numbers. They ran a survey of teens and found Snap was one of the top two most popular apps which gives them serious confidence in Snap’s ability to remain a social media market leader. They also noted that even though "multiples are elevated, so is the market and the universe is trading in line with historical averages."

Evercore ISI was out around the same time with bullish comments, having mapped out a road for Snap to $10 billion in revenue. Their conversations with marketers towards the end of last year were "the most bullish we have ever heard on SNAP."

Then yesterday morning, Morgan Stanley got in on the fun with an upgrade to Snap’s stock, moving it to Overweight and slapping a fresh price target of $80 on it, implying an upside of around 25% from where the stock closed on Monday. Even with last year’s rally, they’re still anticipating “faster than expected engagement, revenue and EBITDA growth." The company’s ability to continuously increase their daily average users bodes well too, because “ad dollars follow users”.

Getting Involved

Shares dipped after the upgrade yesterday and are trading lower in Tuesday’s pre-market session but this looks to be nothing more than some general profit taking by investors. As bond yields have risen in recent weeks there’s been talk that high growth stocks are becoming less attractive, but if anything they suggest the economic recovery is real and is being underpinned by a long awaited uptick in inflation.

Neither of these will be the harbinger of a bear market for tech stocks like Snap though. In fact they’re expected to increase investors’ confidence in the ability of companies like Snap and its peers to hit their lofty growth targets.

With that in mind, investors on the sidelines should consider buying any further dip, as Snap’s place in the hierarchy of social media apps is secured in the short to medium term at least. The company has shown time and time again that they’re more than capable of converting eyeballs to dollars, and Wall Street is bullish on them continuing to do so for some time yet.