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The shares of Snap, Snapchat's parent, soared more than 10% on Thursday, reaching their highest level in six months, thanks to the upgrade of a Wall Street badyst turned optimistic, in part because the Application went from "clickbait influence content" to more premium product content.
In a note on Thursday, Rich Greenfield, an badyst at BTIG Research, upgraded Snap from "neutral" to "buy," with revised financial projections based on a target of $ 15 per share. This is the badyst's first "buy" rating since the company's IPO in March 2017. Stocks advanced to $ 11.14 in morning trading; It should be noted, however, that the stock is still off its peak of $ 17.97 in 52 weeks and less than half its peak after the IPO.
Among the factors of its upgrade: the Discover section of Snapchat has made a "significant reduction" of content with a "low quality, clickbait / T & A" sentiment, in favor of premium publisher content, which reflects the change of Snapchat's underlying content recommendation algorithm. This should allow users to spend more time on Discover and increase their attractiveness for advertisers.
Snap has made concerted efforts to offer Discover original and third-party content in a professional manner. The redesign of the Snapchat app in 2018 was aimed at separating personal messaging (with friends) from mbad-market media. The company has beefed up its catalog of short, TV-like originals, with partners such as Bunim / Murray Productions, the Duplbad brothers, Brad Makeready's Brad Weston and Mark Boal, and has continued to expand its media partnerships with players such as NBC, CBS, ESPN, Viacom, Discovery, A & E and Condé Nast Entertainment. Meanwhile, Snap's media strategy architect, vice president of content Nick Bell, announced last fall his departure from the company after nearly five years.
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Based on Snap's improved advertising growth trends, Greenfield revised its estimates for 2019 to reach $ 1.65 billion in revenue (compared to $ 1.4 billion previously). It anticipates an adjusted loss of – $ 268 million ($ 500 million) and a net loss of 71 cents per share (compared to a net loss of 92 cents previously).
Snap's challenges remain, acknowledged Greenfield. These include chaos within the management team and high level outings, a sloppy redesign last year, its delay in publishing a viable Android version of it. Snapchat application and a failure to recognize the threat of Instagram (which successfully copied the Snapchat Stories feature). In addition, an investigation by the SEC and the Department of Justice is underway regarding allegations that the company failed to provide material information that triggered its IPO.
In its revised estimates, Greenfield predicts a negative free cash flow of only $ 510 million for 2019 and "no longer believes that the company will need to raise capital next year, thereby reducing the financial risk / threat of a settlement. between the GM and SEC ".
"The good news for Snapchat is that performance advertising can evolve rapidly, generating significant revenue gains," writes the badyst in the note. But, he adds, "it's essential that Snapchat convinces top-notch brands of performance ROI that can be found on the platform."
Other reasons given by Greenfield for this upgrade are: "user rigidity", stating that even the "wide range of missteps in the last two years" did not lead to a collapse of users or of use; evidence that Snapchat's newly rebuilt Android application (codename Project Mushroom) provides better performance; and improved morale.
While "2018 was a terrible year for Snapchat with morale at its lowest," Snap hired new executives in recent months, boosting morale, according to Greenfield. In particular, he quoted Jeremi Gorman, commercial director of Snap, formerly Amazon's global advertising sales manager, as saying that he had improved the perception of the company by brands and advertisers.
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