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Oh Snap! Goldman Sachs turns bullish on millennials

Iryna Kirby

Goldman Sachs is making a bullish bet on Snapchat, a popular app loved by many millennial social media devotees.

Analyst Heath Terry and his team at Goldman upgraded Snapchat’s parent company Snap (SNAP) to Buy from Neutral citing better-than-expected user growth and engagement trends. Goldman also boosted its 12-month price target for the stock to $18 from $13 per share.

“We believe product improvements and feature additions are driving positive trends in user growth and engagement that, along with monetization improvement from ad tech initiatives, should drive upside to consensus estimates,” Terry wrote in a note to clients.

Goldman cited the company’s new Android app, the launch of Snap Games and new viral lenses — including the popular gender/age filters — as drivers of user growth acceleration.

Yahoo Finance's Myles Udland, Jennifer Rogers and Brian Sozzi try the gender swapping filter on Snapchat.

Total app downloads for May, the first month reflecting these innovations, was a record 41 million, according to Goldman. This is “a stark reversal of what were otherwise multi-year lows in app downloads that the platform experienced through most of 2018 and early 2019,” said Terry.

Goldman Sachs: Despite recent multiple expansion, Snap user growth reacceleration and upside to consensus revenue estimates create positive risk-reward.

Goldman also addressed one of the biggest concerns that has plagued Wall Street analysts for years regarding Snap — monetization.

“Our checks with advertisers also lead us to believe that the company’s continued innovation in its ad-stack, particularly in self-serve, should allow SNAP to substantially improve monetization of user time spent on the platform over time,” Terry wrote in his note.

Snap shares have been on a tear so far this year, skyrocketing nearly 185% compared to a 20% YTD gain for the S&P 500.

Iryna Kirby is a Producer for Yahoo Finance. Follow her on Twitter at @IrynaNesko.

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