Wall Street Hasn’t Been This Bullish on Snap Since Its Debut

(Bloomberg) -- Wall Street has been getting steadily more positive on Snap Inc. throughout 2019, and all it took was for the stock to nearly triple.

Morgan Stanley lifted its view to the equivalent of a hold on Friday, citing improved revenue momentum as a result of an improved ad product. The call was at least the fourth upgrade the Snapchat parent company has received since the start of September, following similar moves from Evercore ISI, Susquehanna and Guggenheim.

The upgrades have brought Snap’s consensus rating -- a proxy for its ratio of buy, hold and sell ratings -- to 3.41 out of 5, according to data compiled by Bloomberg. That’s the highest consensus since July 2017, and the metric has jumped from a recent low of 2.66. That low was touched on February 5, the day Snap reported fourth-quarter results, leading to a one-day spike of more than 20%, and the beginning of a shift to the company’s narrative.

Similarly, the average price target for Snap currently stands at a little more than $17. This is more than twice the average from early February, and represents the highest since August 2017. It also implies upside of about 19% from current levels.

The improved view has come on a growing conviction that Snap is both expanding its user base -- helped in large part by the viral success of its “face swap” photo filter -- and better capitalizing on it. Morgan Stanley’s Brian Nowak wrote that Snap’s improved ad product was leading to faster revenue momentum and that “there is room for higher monetization” in terms of ad revenue per user.

“At a high level, year-to-date we have underestimated SNAP’s stronger top and bottom-line execution and ability to drive growth and upward revisions,” he wrote.

While the consensus view has been improving, the vast majority of analysts aren’t completely sold on the bull narrative. While 11 firms recommend buying the stock, according to Bloomberg data, 25 have the equivalent of a hold rating and three firms recommend selling. There is a far more optimistic view on rival Facebook Inc., where the consensus rating is 4.63 out of 5.

Snap rose as much as 6.1% on Friday, though it last traded up 1.7%. The stock has surged more than 190% off a December low, although it recently suffered a six-day decline -- its longest losing streak in more than a year -- and short positions have been rising.

The company’s next major test will come later this month, when it is expected to report third-quarter results. Wall Street is expecting revenue growth of nearly 50%, according to data compiled by Bloomberg, while a MODL estimate points to 3.8 million net additions for daily active users in the quarter, up 11% on a year-over-year basis.

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Steven Fromm, Jennifer Bissell-Linsk

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