Augmented reality (AR) technology will boost the fortunes of social media company Snap (NYSE:SNAP), operator of the popular Snapchat app.
That's the view of Deutsche Bank analyst Lloyd Walmsley, who cited this as the main reason for his boost in the stock's price target. Walmsley lifted it by 20% to $48 per share in a note published on Wednesday, maintaining his buy rating on the shares while doing so. The new price target implies an upside of 19% based on the most recent closing stock price.
The rationale is that the market for certain AR functions is immense, and Snap is well positioned to take advantage of this if it can become a more focused company.
"We think sponsored lens/filter ads are better positioned to scale at Snap than most investors realize and set to tie in more explicitly with the company's heretofore somewhat vague e-commerce strategy," Walmsley wrote in his note.
He believes that Snap will soon launch more AR experiences tied into shopping, such as the ability to try on a pair of shoes virtually while using the app. This presents very good possibilities to draw in advertising revenue. The Deutsche Bank analyst estimates that the overall market for such offerings, including the commercialization of the app's famous AR "Lenses," could amount to $4 billion across the next few years.
Snap has been integrating AR functionality into Snapchat for quite some time. Last year CEO Evan Spiegel said that the company's daily active users -- which numbered around 210 million at the time -- utilize such functionality about 30 times per day on average.
On Thursday, Snap stock was an outperformer, rising by 4.8% on a generally down day for the market.