5 Reasons Citi Lifts 'Sell' Rating Off Snap's Stock

Citi's bearish stance on social media company Snap Inc SNAP has come to an end after nearly a year.

The Analyst

Citi's Mark May upgraded Snap from Sell to Neutral with a price target lifted from $6 to $7.

The Thesis

Citi's "Sell" rating dates back to Feb. 20, 2018 but can no longer be justified for five reasons, May said in the note.

1. Snap's stock valuation implies a discount to rival social media companies at fourth times EV/2019 revenue versus Twitter Inc TWTR at six times and Facebook, Inc. FB at five times.

2. Expectations for an improved Android app could result in user and engagement growth.

3. Advertising average revenue per user accelerated in the third quarter, which is encouraging for 2019 if user and engagement growth accelerates as expected.

4. Management deserves credit for slowing down the pace of expense growth and could help the company hit a breakeven EBITDA milestone over the next year.

5. First-hand checks and conversations with advertisers and agencies reveal a "generally optimistic" attitude towards the social media platform after the company made it easier to distribute content and offered improved campaign analysis tools.

Price Action

Shares of Snap were trading higher by 1.5 percent at $6.38.

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