Bearish Sentiment On Snap Reverses; Receives Slew Of Buy Ratings

Snapchat's smartphone app with filters

Image source Snap Inc

Shares of Snap (NYSE:SNAP) opened at 22.74 on Tuesday.

Snap has also become popular with short sellers betting it will fall, with over $600 million worth of its stock now sold short, according to Astec Analytics. Vetr raised Snap from a "hold" rating to a "buy" rating and set a $20.33 price target on the stock in a research report on Monday, March 20th. The stock popped 44% on its first day of trading and hit a record high of 29.44 the following day. While he admits that buying into a firm that's in the venture capital stage comes with more risk than buying into one that's in later stages of growth, in Snap's case, he feels that the potential reward is greater than the risk. "We believe Snap Inc. has the opportunity to create significant leverage on gross margins as cloud computing becomes less expensive and as the company gains pricing power with Discover publisher partners", the analysts wrote.

Monday's reports balance out the ratings: According to FactSet, five analysts now say to hold on to Snap shares, six say to buy the shares and five essentially recommend dumping them.

Snap's listing on March 1 was the largest by a technology firm in three years but trading has been volatile, with many investors critical of decelerating user growth. Bullish and bearish analysts have disagreed on whether or not Snap will be able to fend off competition from Facebook (FB), achieve profitability and continue to attract advertisers. 8,927,105 shares of the company's stock were exchanged. Banks typically wait about 25 days after a company's IPO before discussing the company in order to avoid sharing information selectively or saying anything that swings prices during the volatile early days.

"We believe Snap has all the ingredients to build a robust advertising business", Jefferies' Brian Fitzgerald said in a note. The stock's market capitalization is $19.01 billion. While the initial reviewers of Snap expressed concern about the deceleration in daily active user growth, Terry said comScore data suggests that this metric reaccelerated in the fourth quarter when monthly active users grew 18 million compared to 12 million in the third quarter. "It has also emerged as one of the leading media platforms for millennials". They issued a reduce rating and a $16.00 price objective on the stock. They issued a "buy" rating and a $30.00 price target on the stock.

William Blair analyst Ralp Schackart initiated coverage of Snap stock with an Outperform rating, also highlighting the young age of Snapchat's user base as a huge strength because advertisers struggle to reach this age cohort.

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