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Here's Why the Coronavirus Should Help Snap

By Donna Fuscaldo - Updated Mar 20, 2020 at 12:04PM

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Snap has something Facebook and Google don't: curated information to better ensure accuracy. As the coronavirus rages on, will it boost the stock?

Snap (SNAP 7.97%), the maker of the disappearing messages app Snapchat, is taking a beating in the markets, like most tech stocks, as the COVID-19 outbreak spreads across the globe. 

But with more people forced to hunker down, its messaging app Snapchat could see an uptick in users. It doesn't hurt that misinformation isn't freewheeling on its platform like it is on Facebook (META 3.30%) and Alphabet's Google. That alone could draw users as they try to wrap their heads around the fast-moving outbreak and looking for accurate information.

Then there's the fact that millions of people have a lot of extra time on their hands. With cities shutting down bars, restaurants, movie theaters and urging their citizens to stay home, mobile apps are poised to get more usage. 

The yellow SnapChat logo

Image source: Snap.

Snap works to keep the misinformation out 

Instead of enabling users to populate a feed with anything goes, Snapchat offers curated information and news from trusted sources. Since the novel coronavirus outbreak, it has been positioning itself as a trusted place to get coronavirus-related news. It's teamed up with both the World Health Organization and Centers for Disease Control to provide users with information, and last week it launched a filter in conjunction with the WHO providing tips to stay safe. All of that builds goodwill with current users and sends a message to advertisers that Snapchat is a safe place to run ads. That could boost Snap's subscribers and the money it makes off of advertising. 

It doesn't hurt that the company was already in growth mode before COVID-19 hit. For the fourth quarter, revenue grew 44% year over year to $561 million. Its monthly daily active users increased by 17% to 218 million. The app maker also expressed optimism about its future growth, noting that it's retaining advertisers who are increasing their revenue spend on the platform.

The fact that Snap's advertising is holding up in the face of tough competition from rivals Facebook and TikTok is commendable given its reach. Facebook has 2.5 billion active monthly users, while TikTok has more than 1 billion. When TikTok gained popularity, pundits predicted Snap's demise, but it has been able to grow in the wake of intense competition. 

Advertisers may flock to Snap on the other side of the coronavirus 

While it's anyone's guess as to what impact coronavirus will have on the advertising market, once it's contained, Snap should be a big beneficiary of any spending uptick. That's what is behind the recent rating upgrade by Deutsche Bank. Analyst Lloyd Walmsley raised his investment rating on Snap to buy from hold, arguing it's in the best position to survive the economic hit from coronavirus and the increase in advertising spending that should come after. The Wall Street firm has a $19 price target, implying shares can soar 113%.  

Then there are its shares. In addition to plummeting along with the rest of stocks as investors gauge the economic impact from the COVID-19 outbreak, a recent Securities and Exchange Commission filing revealed that Comcast's NBCUniversal quietly unloaded its holdings in Snap last year. NBCUniversal had acquired $500 million worth of shares in Snap's IPO back in March of 2017 as part of a partnership. That isn't expected to end with the stock sale. NBCUniversal lost $268 million in the investment in 2018 but had a profit of $293 million last year. That move by NBCUniversal is also pressuring Snap shares as investors try to read the tea leaves. 

Year to date, shares of Snap are down 46%. The stock has lost 54% since the beginning of February. Nevertheless, Wall Street has a median price target of $20 on Snap, with some analysts as high as $25. The lowest price target stands at $15, much higher than where the stock is trading now.

With Snap poised to emerge from the coronavirus outbreak unscathed or even better with more advertisers, the depressed price could be a good entry point for investors interested in the social media space

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