Snap Stock: Signs of Revival, Competition and Growth Challenges

Shares of Snap, the owner of famous social media app Snapchat, are trending these days after the stock was upgraded by investment firm Guggenheim. The firm’s analyst Michael Morris believes that Snap stock has a low valuation. He also said in his Sept. 28 note that the market is underestimating the growth potential of the advertisement market. Snapchat, according to Morris, has a potential for sustained revenue growth.

Morris increased his price target for Snap stock to $28 from $22.

A Sign of Relief

Snap investors also took a sigh of relief recently after Apple decided to delay privacy changes in iOS 14 According to Morgan Stanley, Snapchat is one of the top three social media companies that will gain from Apple’s decision to not to move forward with its plan to show a warning on its devices for Identification for Advertisers, or IDFA. Advertisers use IDFA to show, track and create unique ads for users. This planned move by Apple will significantly dent ad revenue of major social media companies. According to Facebook, implementing a warning sign for IDFA – which would give an option to users to opt in to share their device’s unique information with advertisers – would cut Facebook’s Audience Network revenue by half.

Even though Apple’s decision not to proceed with its plans is temporary, it will give Snapchat and other social media companies some time to come up with alternative strategies to minimize the damage or find new ways to create and sell ads.

Snap’s Advertising Products

On Oct. 7, Snap plans to reveal its new celebrity docuseries and a new way for advertisers to buy the first advertisement a user sees in a day on the platform. In an interview with CNBC, the company’s VP of Americas, Peter Naylor, said that Snapchat is experiencing a lot of “momentum” and seeing signs of growth in the advertising market returning back to normal.

Analysts are also bullish on Snapchat’s virtual reality-based features and lens that allow customers to use virtual “try-ons” as a dressing room. Beauty company Sally Hansen recently rolled out a new lens that allows customers to try different clothes, nail colors and shoes virtually. These technology offerings will drive Snap’s revenue in the future.

Caveat

However, not everything is rosy for Snapchat. The company is facing serious challenges when it comes to growth and competition. Its number of users outside of North America and Europe jumped 38% YoY in the second quarter of 2020. But in Europe and North America, the number of users rose by just 11% and 8%, respectively. On the other hand, growth for TikTok and Facebook is extremely strong.