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The Bull Thesis on Snap Stock Remains Strong, Says 5-Star Analyst

Is Snap (SNAP) the "house in a tornado-devastated community that went unscathed?" It is, according to Deutsche Bank analyst Lloyd Walmsley's contacts.

The 5-star analyst relayed information from a “large advertiser” who claimed Snapchat managed to withstand the pandemic-driven ad headwinds better than other social media platforms. This information has boosted Walmsley’s confidence in Snap’s ability to outperform in the coming months.

The Deutsche Bank analyst said, “When Snap reported 1Q, it implied growth went to 6%-plus exiting March, was 15%-plus in April through 4/21, but had grown 11% in the week ending 4/21. Since then, the broader online advertising environment has improved considerably; thus, we think our $428 million estimate for 2Q (vs consensus at $427 million), 10%-plus year-over-year, is beatable and our above-consensus 3Q 18%-plus also looks conservative.”

However, that’s not all Snap has going for it. The photo app is winning new fans faster than it can make a Snap disappear.

In a recent Deutsche Bank survey of 1,000 social media users, Snapchat showed “stand out results.” These include being the only platform to see confidence in its promoted products rise (up from 40% to 44% compared to the previous survey), and notable growth in percent of users following a brand, up from 46% to 53%. Additionally, engagement with ads for brands or products displayed a significant increase, up to 61% from 47%.

Walmsley is impressed, stating: “We think an increasing focus on performance advertising, deeper ad density and better ad relevance are combining to drive improved ad performance, consistent with results over the last several quarters showing accelerating revenue growth.”

The strong customer feedback speaks for itself, and results in a Buy rating from Walmsley along with a price target boost. The figure moves up from $18 to $24. Investors can expect returns in the shape of 22%, should the target be met over the coming months. (To watch Walmsley’s track record, click here)

What’s the view on Snap from the rest of the Street? Based on 20 Buys, 8 Holds and 1 Sell, the analyst consensus rates SNAP a Moderate Buy. However, the average price target of $17.95 implies downside potential of 8% from current levels. Either the analysts feel SNAP’s strong 2020 performance has left the stock currently overvalued or models have yet to be updated. (See Snap stock analysis on TipRanks)

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