The gloves were off for analysts covering recent New York market debutant Snap Inc. (NYSE:SNAP) today as no fewer than eight of them started coverage on the Snapchat owner, mostly with bullish ratings.
According to traders, five of the analysts tagged the social media group with the equivalent of a ‘buy’ rating, and three had ‘hold’ or equivalent ratings on the firm.
Coincidentally – or not – all five brokers were underwriters on Snap’s much ballyhooed flotation, and up until now have been obliged not to issue any research on the stock.
New price targets set for Snap shares ranged from US$23 to US$31, and in pre-market trade on Wall Street the stock was up over 3% at US$23.43.
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That top price target was nabbed by RBC Capital analyst Mark Mahaney, who initiated Snap with an ‘outperform’ rating, noting that the firm has become an innovation leader for consumers and advertisers in the fastest advertising medium, mobile.
In a note to clients, Mahaney said: “We believe that if it sustains its current level of innovation, it can sustain premium growth for a long time and scale to profitability".
Citi set a price target of US$27, which is well above Snap’s closing value on Friday of US$22.74.
Morgan Stanley had been smoking the hype pipe even more heartily, setting a price target of US$28.
Even that was topped by the team at Jefferies, which has set a price target of US$30 for Snap.
“Snap looks well positioned for growth as advertisers clamor to serve ads to its large audience of deeply engaged users, many of whom are in the attractive millennial demographic and are located in high-value ad markets,” the broker said.
Jefferies noted that social media giant Facebook’s average revenue per user (ARPU) is around nine times that of Snap's, but it expects sharp ARPU growth from the instant photo and video messaging company.
Jefferies was co-manager on Snap’s flotation.
“Due to the asset-light strategy (Snap outsources its infrastructure costs to Google and Amazon); Snap should scale its business without significant capex investment. We forecast the company will achieve GAAP [generally accepted accounting principles] profitability by 2019,” Jefferies revealed.
Snapchat has an astonishing 158mln users who on average visit the site 18 times a day, spending 25 to 30 minutes on the app each day.
“Unlike competitors that aspire to connect the entire world, Snap is focused on high-value users located in key ad markets like the US and W. Europe (cost to service rest of world users is not justified by the rev opportunity). Today, around 60% of Snap's users come from the top-10 ad markets, which command nearly 85% of the global mobile ad spend,” Jefferies noted.
Snap shares surged over 40% above its IPO price of US$17 a share on its first day of dealings at the start of this month. Since then the stock has lost around 7% from that peak.
Snap’s IPO valuation of almost $20bn represented the biggest listing of a tech company globally since China’s internet marketplace Alibaba floated in 2014.