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Why Snap Stock Jumped Today

By Evan Niu, CFA – Sep 17, 2019 at 3:46PM

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The Snapchat parent got an upgrade from Susquehanna.

What happened

Shares of Snap (SNAP -0.11%) have jumped today, up by 7% as of 3 p.m. EDT, after the company received an upgrade from Wall Street. Susquehanna boosted its rating on the Snapchat parent from negative to neutral.

So what

Analyst Shyam Patil had previously assigned a negative rating on Snap back in early 2018 but is no longer bearish, as the Snapchat operator is starting to enjoy some momentum in its business. Susquehanna increased its price target from $12 to $18, representing 14% upside from Monday's closing price.

Lens Explorer on Snapchat

Image source: Snap.

"Our checks have suggested that solid growth has continued in 3Q with expectations for continued progress in 4Q," Patil wrote in a research note to investors. "There appear to be many reasons for the continued momentum with checks citing the improved self-serve capabilities, benefits from the sales reorg (which has helped better onboard advertisers and consult them on how to best achieve ROI), and lower-cost inventory." The growing popularity of the Stories format on Facebook's Instagram is also encouraging adoption among advertisers, the analyst added.

Now what

Snap pleasantly surprised investors in July with its strongest user growth in three years, which helped revenue grow by 48% in the second quarter. Patil believes that the company will be able to maintain the momentum in adding more daily active users (DAUs) than expected throughout the second half of 2019. In its guidance, Snap said it expected to finish the third quarter with 205 million to 207 million DAUs, representing sequential growth of 2 million to 4 million. The analyst added that he would be more bullish if not for Snap's valuation.

Snap is set to participate in the Goldman Sachs Annual Communacopia Conference tomorrow.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Evan Niu, CFA owns shares of FB. The Motley Fool owns shares of and recommends FB. The Motley Fool has a disclosure policy.

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