Analyst Sees Android Redesign As Catalyst For Snap To 'Regain Swagger'

Snap Inc SNAP started 2018 with virtually the same valuation as Twitter Inc TWTR. Fast forward to December and both stocks have gone in opposite directions with Twitter worth nearly four times the value of Snap, but one analyst says the company may be regaining its swagger.

The Analyst

Guggenheim analyst Michael Morris initiated coverage of Snap with a Neutral rating and $6 price target.

The Thesis

Snap's dismal 2018 didn't deter Morris. He thinks Snap's android operating system redesign is key to re-invigorated growth and that investor expectations for a successful rollout is low.

“Given that global mobile usage is primarily on the Android OS (78% of the world’s mobile phones operate on Android), we see opportunity for international expansion with a successful upgrade,” Morris wrote in a note.

Despite the potential a positive redesign may have for Snap, the analyst is still cautious the company will see success with its original video initiatives, as competitors allocate significant financial and technological resources to product, acquisition and distribution.

Morris says Snap’s core product -- messaging -- has limited monetization potential in a market that's increasingly seeking scale and video advertising opportunities. The analyst sees innovative advertising products at Snap valuable due to its ability to reach a younger audience.

“[W]e are concerned that at the current valuation level there is an implied assumption for economic growth that exceeds a reasonable expectation for a messaging-first advertising property,” he wrote.

Price Action

Snap's was down about 4.4 percent at $5.94 Thursday afternoon.

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