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Why Snap Stock Jumped Today

By Evan Niu, CFA - Dec 13, 2019 at 3:45PM

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The Snapchat parent got a vote of confidence from Wall Street.

What happened

Shares of Snap (SNAP 5.20%) have jumped today, up by 5% as of 3 p.m. EST, after the company received an upgrade from Wall Street. JMP Securities has boosted its rating on the Snapchat parent from market perform to market outperform.

So what

Analyst Ron Josey is becoming increasingly confident in Snap's turnaround, assigning a $20 price target on Snap shares, which represents roughly 40% upside compared to yesterday's close. The firm is "incrementally confident in Snap's ability to grow its user base, increase engagement given newer products and services, and improve overall monetization as the service attracts more advertisers and share of ad budgets," Josey wrote in a research note to investors.

Three screenshots showing messaging and group calling on Snapchat

Image source: Snap.

After struggling with user metrics last year, the tech company's daily active user (DAU) base has stabilized after it revamped its Android app, which is seen as key to its success in emerging markets.

Now what

Heading into 2020, JMP believes that Snap has also stabilized as an organization after experiencing excessive executive turnover. Snap should be able to keep adding DAUs and may be able to "close the monetization gap with other major social networks" now that it has reorganized its sales force. For reference, Snap's overall average revenue per user (ARPU) was $2.12 in the third quarter, a fraction of larger rival Facebook's ARPU of $7.26.

The analyst is modeling for a 37% jump in revenue to $2.4 billion in 2020, followed by a 30.5% increase to $3.1 billion in 2021.

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