Top Analyst Lays Out the Bull Case Ahead of Earnings

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One of the stock market’s quirks is the “sympathy trade.” That is, when a certain name reports good or bad news, sending the shares either way, others in its segment tend to follow suit.

Case in point: Snap (SNAP) shares were taking a beating in Thursday’s session after Meta’s disastrous earnings display. The market is evidently preparing for the worse when the social media platform reports after the market closes today.

In any case, if Stifel’s Mark Kelley’s thesis is anything to go by, investors will have a great entry point if they heed the 5-star analyst’s advice.

Kelley recently resumed coverage of Snap with a Buy rating and $45 price target, suggesting shares have room to run ~83% over the coming months. (To watch Kelley’s track record, click here)

So, what’s behind the optimistic outlook?

Kelley explained, “Our positive stance on shares is predicated on our view that there is significant upside to our estimates, which are already slightly above consensus in our forecast period. We are encouraged by the resiliency of the platform’s user base throughout the pandemic and, to date, the company’s pipeline of under-monetized and yet-to-be-monetized products, continued traction and focus on the greater e-commerce opportunity, as well as the positive feedback we have received from the digital advertising ecosystem.”

Even without the anticipated revenues from newer products such as Spotlight – for which the analyst sees “potential” of $1 billion+ in incremental revenue – Kelley thinks the company’s target of 50%+ top-line growth is “achievable.”

The analyst also thinks that given Snap’s core Gen Z demographic’s “resilient engagement,” advertisers will remain onboard. There’s also the prospect of the platform continuing its “aging up” process.

Throw in Snap’s “early lead” in AR/Lenses and ongoing investment in Discover content across various regions, and Kelley expects “continued ARPU growth and appreciation relative to its Social peers.”

But what about the elephant in the room, namely the threat of TikTok? Given the platform’s performance throughout the pandemic, and engagement remaining intact despite the rival’s ascent, Kelley believes the company will be able to “mitigate” TikTok’s rise. “We don’t view this as a zero-sum game,” Kelley further explained, “And we view Snapchat as one of the most innovative companies in our coverage universe when it comes to augmented reality (AR).”

Ok, then, a bullish assessment from Stifel, but what does the rest of the Street have in mind for SNAP? Based on 15 Buys and 5 Holds, the stock boasts a Strong Buy consensus rating. On where the share price is heading, Kelley’s colleagues have an even more bullish slant; going by the $56.37 average price target, shares will rise ~130% in the year ahead. (See SNAP stock forecast on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.



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