The logo of the mobile app Snapchat.
Lionel Bonaventure/AFP via Getty Images
Snap stock jumped more than 5% on Tuesday, after Goldman Sachs raised its target price and said that the parent of Snapchat was likely to beat its own fourth-quarter guidance.
Shares of Snap (ticker: SNAP) advanced 5.8%, to $51.05, in afternoon trading.
In his positive note, Goldman Sachs analyst Heath Terry set a price target of $70 on the stock, up from $47, justifying an implied 45% of upside on the tech improvements and business partnerships that the company has announced since its third-quarter results.
Based on research from third-party app data, Terry’s team has concluded that Snap’s direct-response ads have remained strong through the latest Covid-19-related lockdowns and will contribute 8 percentage points above consensus estimates to fourth-quarter growth.
For the fourth quarter, analysts polled by FactSet expect sales of $844 million, which amounts to growth of 51%.
The rest of Wall Street is decidedly not as excited about Snap stock as Terry is. Analysts have a mean target price of $42.12, which implies a downside of roughly 17% for the stock. Of the analysts who follow the company, 67% rate it a Buy and 26% rate the name a Hold. Only three analysts, or 8% of the 39 who cover it, have a Sell rating.
Looking past the fourth quarter, Terry predicted that advertiser demand for online inventory would continue to grow—benefiting other social media stocks as well—as TV viewership declines and the economy recovers from the damage done by coronavirus-related lockdowns.
And as demand for ads picks up, Snap’s advertising tools keep improving. Terry wrote that Snap’s efforts to give advertisers more information about how its ads perform, including making an adjustment to a tool that helps clients optimize its ad spending, will help clients squeeze more value from each dollar spent on the platform. Snap should collect more ad clients, or a greater share of spending from existing ad buyers, if it can continue to demonstrate the upside in using its tools.
Terry also highlighted Snap’s partnership with Unity Software (U), the maker of videogame developer tools, that will let advertisers place ads in games.
Unity has a large inventory, and boasts more than two billion monthly active end users, Terry noted. Because of the partnership, advertisers using Snap’s tools can now target that vast base of users, significantly increasing the size and availability of ad inventory that Snap can sell. The deal also includes giving developers who use Unity’s platform access to a piece of Snap technology that makes signing into games and apps easier.
Snap stock has had a strong year, rising about 200%, as the benchmark S&P 500 index rose 16%. The Nasdaq Composite index rose 45% in 2020.
Write to Max A. Cherney at [email protected]
