By Snap Inc. (NYSE: SNAP) has been a disappointment for its shareholders throughout 2024.
The stock has dropped over 40% in the past three months, bringing its valuation to an attractive level.
But is this a great buying opportunity or just another value trap?
According to Andrew Boone, an analyst at JMP Securities, it’s the former.
He suggests that if you invested $1,000 in Snap today, you could see that investment grow to $1,700 by the end of 2025.
Boone shared this optimistic outlook in a recent research note to clients.
Why is JMP bullish on Snap stock?
Boone upgraded Snap to “outperform” and set a price target of $17, implying a potential 70% upside from its current level.
He is optimistic because of recent positive changes at the company.
Last month, Snap announced an overhaul that includes the introduction of new AI tools.
JMP Securities expects these tools to significantly boost Snap’s share price going forward.
Boone also highlighted a shift in Snap’s growth trajectory, noting an “inflection in impression growth.”
The company has plans to launch Simple Snapchat and Sponsored Snaps, which he believes will increase North American user engagement and enhance advertising opportunities.
With these new ad products, Boone sees strong potential for revenue growth.
It’s worth noting, however, that Snap does not currently pay a dividend.
Analysts suggest that Snap’s app redesign, which simplifies navigation by reducing it to three screens, will make the Spotlight feature more accessible and likely boost its usage.
This change is expected to improve overall user engagement, especially among users over 18, who account for about 80% of Snapchat’s audience.
JMP Securities predicts that the introduction of Sponsored Snaps will play a key role in driving ad revenue growth in 2025.
Currently, users open Snapchat around 40 times a day, with most interactions happening within messaging.
Sponsored Snaps will enable advertisers to place messages directly into users’ inboxes, potentially generating an additional $180 million in ad revenue.
This would represent approximately four percentage points of ad growth, based on JMP’s 2024 advertising revenue estimate of $4.9 billion.
Snap shares are trading at a discount
Although it’s unclear when Snap will launch these new products, Boone remains confident.
He appreciates the company’s product-led growth initiatives and finds the valuation appealing, citing a 15.5x 2026 estimated EBITDA.
JMP’s positive outlook on Snap comes just a week before the company is set to release its third-quarter financial results.
Analysts expect Snap to report a loss of 13 cents per share, which would be an improvement over the 21-cent loss in the same quarter last year.
Snap has also continued to grow its daily active users (DAUs), reporting a 9% year-over-year increase to 432 million in the latest quarter.
More users generally lead to more advertisers, driving revenue growth.
With Snap stock currently hovering near its 52-week low, the valuation seems compelling for investors looking to enter at these levels.
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