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Snap Stock: Next Stop, $30?

By Rick Munarriz - Mar 22, 2017 at 8:20AM

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Snapchat's parent company earns its second "buy" rating, and more are on the way.

It took more than two weeks of nine analysts initiating coverage of Snap, Inc. ( SNAP 5.17% ) with bearish or neutral ratings before James Cakmak at Monness Crespi Hardt stepped up with the first bullish call on the stock on Monday.

He wasn't alone for long. Brian White at Drexel kicked off his coverage of Snapchat's parent company on Tuesday afternoon with a "buy" rating. If Cakmak turned heads with a price target of $25 as the stock dipped into the teens for the first time, one can only imagine how those heads must be spinning with White's $30 price target. 

Cakmak's goal of $25 is at least something we've already seen, as the stock peaked at $29.44 on its second day of trading back on March 3. Since then, the shares have surrendered nearly a third of their peak value, and we've never seen the stock hit $30.

Snapchat's Geofilters being used in Disneyland.

Image source: Snap, Inc.

Snap snaps back

After back-to-back weeks of sharp double-digit percentage declines, the stock was showing signs of life by kicking off this week with back-to-back daily gains, ahead of White's bullish call. Even with the general market posting its worst trading day of the year, Snap stock muscled its way higher on Tuesday.

White thinks Snapchat has a stronghold on millennials that will be challenging for other platforms to disrupt. Most of the bearish analysts earlier this month had their concerns about decelerating user growth and the challenges of monetization, but White thinks Snap is just getting started as it cashes in on its mammoth-sized user base. Snap's flagship app was logging in an average of 158 million daily active users as of its most recent quarter. 

The analyst also thinks Snap is a ground-floor opportunity in augmented reality, a niche that should also lend itself to hearty monetization through mobile advertising. 

Cakmak and White may seem to be making contrarian market calls here, as six of the first nine initiations were bearish. However, they're unlikely for long to be the only analysts with bullish ratings on the stock. The Securities and Exchange Commission requires an offering's underwriters to refrain from putting out research for the first 25 days of that IPO's debut, and there were a whopping 26 firms distributing shares of Snap in the IPO earlier this month. They handed over the hot stock at $17, and many of them are likely to initiate coverage in a few days with bullish calls, unless the stock goes on a big run. 

The daily gyrations of Snap stock have been wild, and the biased bullish calls that will follow in the coming days may not have the same kind of positive impact the Cakmak and White initiations have this week. It will ultimately be up to Snap to allay the monetization concerns and justify the rich market multiples. The bears are out there, and after two weeks of carnage, the bulls at starting to fight back. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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