Shares of Snap Inc SNAP have fallen 30% since the end of January and investors should be buyers of the dip, according to MKM Partners.
The Snap Analyst
Rohit Kulkarni upgraded Snapchat's stock from Neutral to Buy with an unchanged $19 price target.
The Snap Thesis
Snap's stock decline sets up investors to take advantage of a "highly asymmetric risk-reward" profile, especially given its minimal exposure to coronavirus headwinds, Kulkarni said. There are five reasons to now be buyers of the stock:
- The research firm's $19 price target is based on 8.0 times 2021 estimated revenue and under a bear case the scenario the stock should be worth $12 per share.
- Snap's management discussed at a Wednesday conference its user community hasn't experienced any negative health effects from the coronavirus as the vast majority of its users are between 13 and 34 and outside of Asia.
- The company boasts multiple near-term catalysts, including new Gaming and Maps products, a broader rollout of new dynamic product ads, evidence the app's Android redesign is successful, and management's recent hints that licensed and revenue sharing content will be coming soon.
- Expectations for the company to close the average revenue per user (ARPU) gap versus its peer, a transition towards a self-funding growth mode, and expanded core use-cases.
- Longer-term catalysts include the ongoing transition from TV dollars to mobile streaming, private messaging is growing in popularity, and growing interest in augmented and virtual reality technologies.
SNAP Price Action
Snap's stock traded higher by 2% to $13.91 per share at time of publication.
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