5 Reasons To Start Buying Snap's Stock, According To Barclays

One analyst feels the time is ripe to begin accumulating shares of Snap Inc SNAP, the parent of ephemeral video and photo sharing application Snapchat.

The prognostication of an inflection point has gone down well with investors.

The Analyst

Barclays analyst Ross Sandler upgraded Snap to Overweight, with a $18 price target.

The Thesis

After remaining on the sidelines since Snap's IPO, Sandler believes now is the best time to build positions in the shares, with the view premised on five factors.

1. With pricing transition at late stage, the company is likely to hit or exceed consensus revenue estimates and see accelerating growth in 2018;
2. Snap can now co-exist with Facebook Inc FB, as opposed to the 2017 theme that the latter is predating on the former;
3. High short interest versus peers;
4. Tencent's open market purchase price representing a floor at about $14; and
5. New ad units like Promoted Stories contributing to the story near term.

"In short, we think the worst is behind SNAP and the company is likely to get back on track in 2018," Barclays said.

The firm also noted that valuation, at 12 times the estimates revenues for 2018, is rich. Notwithstanding the rich valuation and the no shortage of risks, the firm believes most of them are well understood and in the current Street narrative.

Barclays believes the consensus revenue estimate of $253 million for the fourth quarter is too low. The firm expects the company to take share in Mobile display. With the auction transition mostly complete by the first quarter of 2018, the firm expects Snap to get back to above-industry growth, especially if Promoted Stories ramps.

The Price Action

Since its listing on March 2, Snap shares dropped 41 percent.

At time of writing, Snap was rallying 7 percent on the day to $14.52.

Related Links:

Snap Falls Flat: Here's What Wall Street Thinks Of Snapchat's Dismal Q3

5 Reasons JMP Downgraded Snap (And 4 Reasons They Could Be Wrong)