On Tuesday, Morgan Stanley (NYSE:MS) upgraded Snap Inc (NYSE: NYSE:SNAP) stock from Underweight to Equalweight and increased the price target to $16.00, up from the previous $12.00. The upgrade reflects the firm's assessment of Snap's advertising business performance and a more balanced risk-reward outlook.
Snap's recent improvements in advertising tools and growing interest from small and medium-sized businesses (SMBs) in testing the company's direct response (DR) offerings have been noted as key factors behind the upgrade.
Morgan Stanley acknowledges advancements in Snap's attribution tools, which are critical for advertisers to track the effectiveness of their ads, as a positive development.
The financial institution also anticipates an enhanced app installation offering from Snap, which could drive further growth. Based on these factors, Morgan Stanley has revised its revenue projections for Snap for the years 2024 and 2025 upwards by approximately 2% and adjusted the expected EBITDA (earnings before interest, taxes, depreciation, and amortization) to increase by around 8% for 2024 and 6% for 2025.
The upgraded price target of $16.00 represents an approximate 10% upside from the previous target, signaling Morgan Stanley's confidence in Snap's potential for growth. This new valuation is based on the perceived improvements in Snap's advertising capabilities and the potential for these enhancements to contribute to the company's financial performance in the near term.
In other recent news, Snap Inc. continues to make significant strides in its operations and financial performance. BMO Capital Markets maintained an Outperform rating on Snap, highlighting a surge in user engagement and resilience in North America due to successful iOS platform updates.
The firm also anticipates Snap's advertising revenue to increase by approximately $100 million in the latter half of 2024 due to a shift in advertising expenditures, with the introduction of Sponsored Augmented Reality Filters expected to attract major events' advertising budgets.
In the wake of a broader trend of workforce reductions across North American tech firms, Snap has announced job cuts. Despite this, the company has revealed plans to raise $650 million through a private placement of convertible senior notes due in 2030, with an additional offering of $100 million in notes subject to market conditions. The proceeds are intended for general corporate needs, potential acquisitions, and repurchasing part of existing convertible senior notes due in 2025 and 2026.
Snap reported a robust 21% increase in revenue year-over-year in its first-quarter 2024 results, attributed to enhancements in its advertising platform and a rise in demand for its solutions. The company also reported a significant uptick in daily active users, reaching 422 million, marking a 10% increase from the previous year.
Looking ahead, Snap anticipates a revenue growth of 15% to 18% for the second quarter. These developments reflect the ongoing momentum in Snap's operations and financial performance.
InvestingPro Insights
In light of Morgan Stanley's upgrade of Snap Inc (NYSE: SNAP), current InvestingPro data provides additional context for investors considering the company's prospects. With a market capitalization of $24.36 billion and a notable revenue growth of 20.85% in Q1 2023, Snap's financial position reflects both its challenges and opportunities. Despite a negative P/E ratio of -18.42, indicating that the company is not currently profitable, Snap's revenue for the last twelve months as of Q1 2023 stands at $4.812 billion, with a gross profit margin of 53.29%, showcasing its ability to generate significant revenue against the costs of goods sold.
InvestingPro Tips highlight that while the stock has seen a decline over the last week, with a 1-week total return of -8.43%, it has experienced a strong return over the last three months, at 29.76%. Additionally, analysts predict Snap will become profitable this year, which could signal a turnaround for the company's financial health. It's also worth noting that Snap's liquid assets exceed its short-term obligations, which suggests a stable financial footing for managing its debts in the near term.
For investors seeking a deeper dive into Snap's financial metrics and to uncover additional InvestingPro Tips, a visit to https://www.investing.com/pro/SNAP is recommended. There are six more tips available that could provide further insight into Snap's investment potential. To access these insights, use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
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