Drexel Hamilton Starts Snap Inc (SNAP) at Buy, $30 PT
Drexel Hamilton initiates coverage on Snap Inc (NYSE: SNAP) with a Buy rating and a price target of $30.00.
Analyst Brian J. White commented:
- We are initiating coverage of Snap with a BUY rating and a $30 12-month price target.
- Snap is a very unique tech company that should not be pigeonholed in a particular industry, or investors risk missing the forest for the trees. Snap views itself as “a camera company” and we believe this fosters a mindset for innovation to transcend the boundaries of its competitors. We view Snap as a platform for the imagination that unlocks the creativity of its users and allows uninhibited expression with friends. Snap is a fun place to spend time which can be monetized.
- Snap’s flagship product is Snapchat, a mobile camera application that has risen in the ranks to become one of the most popular mobile applications with millennials (we have one in our group) and exited 2016 with over 158 million average daily active users. As such, Snap taps into the most desirable, largest and most difficult to reach generation for advertisers - millennials.
- Although other social messaging platforms enjoy a much higher user base, we believe Snapchat has a cachet with millennials that will be difficult for other platforms to garner. Moreover, we believe there is significant opportunity for the Snapchat “pixy dust” to spread overseas and across generations in the coming years.
- As users view the world through Snap, we believe the company’s position as an early pioneer in the rise of augmented reality (AR) opens up the potential for significant monetization opportunities in mobile advertising. Moreover, Snap entered the hardware world with Spectacles in 2016 and the company is making more original content available to its user base.
- Millennials are a massive generation at approximately 27% of the global population or 2 billion people (Pew Research Center) with the largest contributions from India, China and the United States. India is the largest millennial country in the world at 385 million people (Pew Research Center) and we believe Snap has a big opportunity in the country over the next 3-5 years. Although Snap currently has limited access to China given its primary reliance on Google Cloud; we believe the company could leverage AWS through its cloud partners over the next 3-5 years.
- Snap users need a high-end smartphone and a high-speed mobile network to fully leverage the Snapchat platform. As such, 76% of Snap's average daily active users in 4Q:16 lived in North America and Europe. Today, Snap is focused on the wealthier, more developed parts of the world but we believe Asia offers attractive growth opportunities in the future as more consumers enter the middle class (largely from Asia), driving increased smartphone ownership and expanded 4G network coverage. GSMA estimates that half of the 1.9 billion new smartphone additions between 2016-2020 will come from Asia with the largest contributions from India (~339 million) and China (~175 million). Moreover, GSMA forecasts global 4G-LTE connections (excluding M2M) will rise from 1.74 billion in 2016 to 3.63 billion in 2020 with 75% of the world’s population covered.
For an analyst ratings summary and ratings history on Snap Inc click here. For more ratings news on Snap Inc click here.
Shares of Snap Inc closed at $19.93 yesterday.