Snap Inc.’s newer features are gaining traction, which could give a further boost to its already hot shares, according to a Morgan Stanley analyst.
Morgan Stanley’s Brian Nowak upgraded Snap’s stock
to overweight from equal weight late Sunday, arguing that the company’s momentum with features like Spotlight and Maps could translate into greater revenue potential. He raised his price target on the stock to $80 from $50, with the new target representing about 22% upside from the current stock price.
“As we have seen with other platforms (FB, GOOGL, etc.), new forms of engagement create opportunities for more monetization (ad dollars follow users),” Nowak wrote. “We think the same will hold at SNAP.”
The company recently disclosed that its newly introduced Spotlight platform, which lets users submit Snaps for viewing by a wider audience beyond just their friends, had over 100 million monthly active users in January. Spotlight gives Snap a chance to better capitalize on short-form video, which Nowak said “is set to remain one of the most rapidly growing forms of online entertainment.”
Nowak is also upbeat about the revenue potential that exists in other areas of the business beyond Snap’s core messaging platform. With Discover, a section of the Snap app that features content from publishers and original shows from Snap, the average revenue per user lags what it is for the core Snap platform despite substantially higher ad prices, “speaking to the monetization opportunity,” Nowak wrote. He projects a 53% compound annual growth rate for Discover from 2021 to 2024.
Another emerging area of Snap’s business is Maps, a function that lets people see on a map what activities their friends are taking part in and explore other local spots. “We see monetization potential through SMB [small- and medium-size business] partnerships and transaction integration,” Nowak wrote, though he’s more conservative on this opportunity given that Alphabet Inc.’s
Google Maps has demonstrated some “difficulty to scale and execute on local Map monetization.”
Nowak projects that Snap Maps could bring in $129 million in U.S. ad revenue by 2024, while he says the platform doesn’t currently generate revenue.
Snap shares have gained 48% over the past three months as the S&P 500
has risen 9%.
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