Why Snap Analyst Is Confident of Multiple Years Of 'Elevated Growth'

Snap Inc SNAP shares are advancing strongly Tuesday on the back of a positive analyst action.

The Snap Analyst: Atlantic Equities analyst James Cordwell upgraded Snap shares from Neutral to Outperform, while maintaining the price target at $75.

The Snap Thesis: The recent pullback in Snap shares creates an attractive entry point, analyst Cordwell said in a note.

The company, the analyst said, has grown from a message-centric app to a broad content platform through "best-in-class" innovation.

Disclosures of the company show there has been significant growth in time spent on Discover, Shows and Spotlight, which is meant for promoting short viral videos, the analyst noted.

This underlines a shift toward more monetizable time spent on the service, Cordwell said. The analyst estimates a 33% compounded annual growth rate in average revenue per user between 2020 and 2023.

Related Link: Snap Has Upside To $80, Morgan Stanley Says In Upgrade

Snap is likely to capitalize on the strong momentum seen in its ad business and deliver outsized growth, Cordwell said. Improvements in monetizable time spent and strong offerings, in both direct response and brand advertising, are underpinned by an ad tech stack now comparable to best-in-class peers, he added.

Unmonetized products, primarily Spotlight, are expected to add about $7 billion to revenues in 2025, according to the analyst. The analyst estimates revenues of $8.8 billion for 2023 and $16.6 billion for 2025.

The shift in time spent from messaging to Discover, Shows and Spotlight, the analyst said, will boost structural margins, given the monetization and revenue share characteristics of each.

"Combined with strong momentum for the current ad offerings and a pipeline of products that could significantly augment revenue in the medium term, we expect the company to continue closing the ARPU gap vs. peers, leaving us increasingly confident the company can deliver multiple years of elevated growth," Cordwell wrote in the note.

SNAP Price Action: At last check, Snap shares were up 4.31% to $56.44.

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