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1 Analyst Feels Snap Stock May Finally Be Bottoming Out

By Rick Munarriz - Sep 13, 2018 at 3:40PM

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Pivotal Research analyst Brian Wieser upgrades the stock, bucking an ugly wave of bearish sentiment.

Snap Inc. ( SNAP -2.34% ) shares hit fresh all-time lows yesterday after three different analysts slashed their price targets on the stock, but one Wall Street pro is bucking the trend. Brian Wieser at Pivotal Research is upgrading shares of Snapchat's parent company following Wednesday's plunge, lifting his rating from sell to hold.

Wieser isn't bullish. His $9 price target -- unchanged from where it was at the time of his previous update -- is actually just below the stock's close at $9.20 on Wednesday. However, given all of the bad news that Snap investors have been treated to this week, summer, and year, any upgrade is a welcome update at this point.

Snapchat app user smiling at a phone, with a Snapchat billboard in the background

Image source: Snap, Inc.

Searching for a bottom

Wieser concedes there are near-term risks in owning Snap. With Instagram and other platforms growing at Snapchat's expense, core user growth stagnating, and an unimpressive corporate structure, there are plenty of ways for Snap to keep failing at current levels. However, with Snap's long-term potential -- as advertisers continue to flock to its mobile messaging app to reach young users who aren't in the audience for traditional marketing missives -- it's hard to write off Snapchat and its 188 million daily active users completely.

In the near term, a buyout as a safety net isn't likely, which led to Citi analyst Mark May lowering his price target on the shares earlier this week. However, Wieser isn't willing to rule out that event, and that could help stabilize the stock as long as usage trends don't continue to disintegrate.

Keeping its audience count in check is the biggest challenge for Snapchat these days. Daily active users slipped from 191 million in the first quarter to 188 million in the second quarter. Snap's guidance suggests that the net departures will continue in the third quarter.

Snapchat remains less than a year removed from the poorly received app redesign that it's been trying to walk back for months. Revenue trends have been more encouraging than usage as Snap's monetization gets better. The platform that many figured could never be monetized a few years ago is drumming up revenue -- but not enough top-line results to save it from a bottom-line deficit.

Snap is in a race against time. It's blown through a lot of the cash from its IPO (initial public offering), key executives, and even celebrity influencers. The stock may not bottom out until its active user count does, but Snap stock has bounced back after correcting sharply in the past. It wouldn't be a surprise if it also bounces back here, as it finds a bottom trading in the single digits for the first time. Snapchat is faltering, but it's not broken.

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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