Citigroup updated Snap’s inventory Monday in light of accelerating advertising revenue and greater profit expectations surrounding the forthcoming launch of a new variant of its program for Android.
Analyst Mark May bumped his rating to neutral from sell and informed customers that a growing number of advertisers are optimistic in the platform’s ability to showcase media. The stock rallied more than 2% in premarket trading after the update.
The advertisers and agencies “we speak with are generally optimistic about the outlook for the platform, including stating that policy changes have made it easier to distribute content,” May wrote. “Advertising average revenue per user accelerated in the third quarter (both in the U.S. and Internationally), which bodes well, especially if user growth likewise improves later in 2019.”
May also increased his 12-month price target on Snap stocks to $7 from $6, implying more than 11 percent upside from Friday’s closing price of $6. 28.
The analyst wrote that stocks of the photo-sharing firm are more than 70 percent because he downgraded the equity in February. Such a steep sell-off seems to have made the stock economical, May composed, using its valuation now below that of both Twitter and Facebook.
Snap’s inventory has swooned as the company faces fierce competition from Facebook-owned Instagram, which co-opted Snapchat’s Stories feature. In a bid to re-entice users, Snap CEO Evan Spiegel confessed the firm “rushed” a redesign of its own program this past year. Users were disappointed in the upgrade that the company was forced to scrap a lot of the plan.
The company posted a narrower-than-expected profit shortfall in the third quarter, reporting a loss of 12 cents per share versus expectations of a reduction of 14 cents per share. Additionally, it reported better earnings per user of $1. 60 compared with Wall Street’s expectations of $1. 52 each user.
While Instagram dethroned Snapchat as popular among teenagers in 2018, the past 12 months also have been demanding for the social networking business amid the passing of executives. However, some analysts are optimistic the anticipated redesign to Snapchat’s Android app may bring in new users in countries with a smaller percentage of Apple iOS users.