Citron Takes Contrarian View, Champions Snapchat Stock

Snap Inc SNAP is down nearly 50 percent from its year-to-date high. It’s suffered poor publicity and posted weak earnings, and amid all that, it’s racked up short interest of 110 million shares.

Naturally, it has a fan in contrarian Citron Research.

“Citron believes that the SNAP shorts have overstayed their welcome,” Andrew Left said in a Thursday report. He posted a $17 price target, suggesting nearly 50-percent upside.

How Snap Compares

Considering enterprise value-to-sales ratios, Snap is trading at its largest-ever discount to Facebook, Inc. FB and Twitter Inc TWTR, even as it posts the fastest revenue growth.

Snap has half the market cap of Twitter despite recording more users, and its EV per daily active user is $63 against Facebook’s $345 — despite its higher concentration of the most desired user demographic.

Its short interest comprises 21 percent of float against 4.7 percent for Twitter and 1.2 percent for Facebook.

Citron thinks the hate is overdone.

“The most heavily shorted social media site offers a compelling opportunity for investors, as even no news is good news,” Left said.

The Snap Story

In Citron's view, Snap’s ad business is picking up; it has one of the highest ratings among teens and serves as a bridge to Generation Z; it’s uniquely demonstrated no data privacy issues; it’s secured an investment from Tencent; it’s improved from the redesign; and expectations can only get better.

“Snapchat is not a fad. It is one stabilizing quarter from giving investors a 30-percent or more return — more than you can see in any FANG stock in our opinion,” Left said. “Whatever criticism shorts might have of the SNAP stock, you cannot ignore the size, scale, and reach of the product, which has the mindshare of the most important demographic in the market.”

Based on these circumstances, Left hypothesized that Snap will soon be acquired, potentially by Alphabet Inc GOOGL GOOG or Apple Inc. AAPL.

Snap traded up as much as 7 percent on Citron's endorsement before closing 3.83 percent higher on the day at $11.39. 

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