Snap
Snap CEO Evan Spiegel.
- Most have warned of Snap's monetization issues, but Goldman Sachs couldn't disagree more.
- Snap's switch to programmatic ads will generate revenue growth
- Goldman raised its price target to $23.
Up and down Wall Street, banks have been warning about Snap's monetization problems. But a report from Goldman Sachs analyst Heath Terry begs to differ.
Goldman, which raised its Snap price target to $23 from $18 following the company's blockbuster quarter, is confident in the photo-sharing company's ability to create "visibility into pricing." That means the company's shift into programmatic ads will allow advertisers to see how their ads are performing.
Snap's recent move into creating that programmatic ad technology put a dent in its ad pricing, but Goldman notes the shift, which has "weighed on monetization growth in recent quarters, will naturally slow." Although CPM (cost per impression) was down 25% quarter-over-quarter, total ad revenue increased by 38% for that time period because the number of ad impressions grew four-fold over the past year. Every time a user touches an advertisement (an impression), the advertiser pays Snapchat.
Although the Goldman's report warns of Snap's volatility in what it calls "near venture stage investment," the bank maintains the company's "audience and engagement represent a unique asset that will benefit from the growth and diversification of internet usage and advertiser adoption."
Snap priced its IPO on March 1 at $17, and the stock reached a high of $29.44 just two days later. Then, a slew of analyst downgrades put shares out of favor. The stock bottomed at $11.24 in August.
But shares began to rebounded as Tencent took a 10% stake following the company's dismal third-quarter results and after the company announced a redesign to its app.
Snap shares are up more than 30% this year and trade above $19 apiece.
