Snapchat (Shutterstock photo)Snapchat (Shutterstock photo)

Picture Snap (SNAP) stock at $20 per share.

That’s not as far fetched as it might sound, according to Credit Suisse analyst Stephen Ju, who just raised his price target on the young camera company. While citing increased user engagement on the messaging platform, Ju bumped his price target to $20, up from $17, implying 39.5% upside from Tuesday’s closing price of $14.34.

SNAP stock surged as much as 11.44% during Wednesday’s session, climbing back above $15 per share and just barely missing $16 to close at $15.98. What’s driving Credit Suisse’s bullish call? Among other things, Ju — in a note to shareholders Wednesday — argued that Snap’s CPMs (Cost-Per-Mille) are stabilizing and its daily active users (DAUs) are on the rise.

As with digital advertisers such as (FB) and Google (GOOG, GOOGL), publishers generally prefer to bill their ad clients on an impressions basis (priced per thousand impressions) given that ads are an inventory-based product as opposed to performance-based. As such, advertisers pay for every thousand times their ads appear in front of their target customers.

In the case of Snap, Credit Suisse is encouraged by not only what the analyst sees as a stabilizing business, Ju also noted that CPMs may show a “modest increase.” In terms of DAUs, Ju raised his estimates for North America — Snap’s core market — from around 1.5 million sequential net adds to 3.2 million.

That’s a significant jump in confidence, especially when considering that Snap has disappointed investors with user growth over the past two quarters, causing the stock in August to plunge to a new all-time low of $11.28, which at the time, amounted to a 33% decline below it March IPO price of $17.

On the conference call with analysts following the Q2 earnings results, co-founder and CEO Evan Spiegel explained the company’s reasoning for its low DAUs and for not taking a more global approach. “The market continues to focus on daily active users as a proxy metric for revenue opportunity,” Spiegel said. “We’d have to add more than 10 million daily active users in the rest of the world for every 1 million daily active users in the U.S. and Canada in order to make the same amount of money.”

Fast forward two months later, Wall Street — understanding the company’s metrics better — is now warming up to Snap and willing to look beyond Snap’s near-term flaws. In this case, Ju believes that the long-term benefits in SNAP stock outweigh the risks (40% upside vs. 6% downside), saying, according to Street Insider, that “Snap is a margin expansion story with revenue CAGR exceeding cost of sales CAGR.”

Back in August we looked at the prospect of Snap shares, arguing that the stock looked too beaten up to ignore the value, saying “that anyone who has wanted to exit their positions have already done so.” We correctly called the bottom on SNAP stock. And Wall Street is finally coming around. It’s better late than never.

At the time of publication, Richard Saintvilus was long SNAP shares.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Source link