BARCLAYS: Snap is at a turning point

REUTERS/Mike Blake

• Snap is trading higher after Barclays upgraded the stock to overweight.
• The tech sector in general is recouping some of its recent losses.
• The company is launching its biggest redesign ever, which could be a catalyst for higher revenues and a shift in the narrative around the company.
• Watch Snap's stock price move in real time here.

Snap shares are trading up 9.14% at $14.81 apiece after Barclays upgraded the company from neutral to overweight with a price target of $18.00. It's also seeing a boost as the tech sector in general wins back some of its recent losses.

"We've been on the sidelines since the IPO, but feel now is a good time to start accumulating shares," Ross Sandler, an analyst at Barclays wrote in a note to clients.

Sandler had five main points for why he thinks Snap is set for a comeback:

1. The possibility that the company could start hitting revenue estimates while accelerating growth.
2. A changing narrative that sees Snap coexisting with its rivals.
3. High short interest compared to its peers while the founders own 50%.
4. Tencent's investment in the company.
5. Buzzy new ad products that will add to the story in the near term.

"We think the worst is behind SNAP and the company is likely to get back on track in 2018," Sandler wrote.

The upgrade comes as the company's biggest redesign of its app starts to land on users' phones. Snap announced last week that it would be updating its app to better differentiate between personal content from friends and content from brands and celebrities.

Sandler said that Twitter and Facebook both benefitted from pivoting to an algorithm for their feeds, and Snap could see the same boost. Snap is quick to point out that its feed will contain only content its human curators approve, which contrasts with Facebook, Twitter and Google who are all under fire for controversial content surfacing on their platforms.

Snap boasts impressive user engagement numbers compared to its rivals, and the new design could help increase it even further, Sandler said. Low-end Android users sometimes experience tech issues with the app, so its new architecture could improve the experience of those users. Revenue could increase with more engagement and new ad products, like promoted posts in the brands feed.

The timing is perfect to invest in Snap, Sandler says. The short interest is currently high, and the narrative around the company is strongly negative. But, the redesign could spark a turnaround of the company's narrative. Tencent bought shares in the $14 to $15 range, effectively setting a floor for the stock, according to Sandler.

Sandler says that investing now would not be for the faint of heart, as going up against the Google and Facebook digital ad monopoly is a tough game to play. His $18 price target is 24% higher than the company's current price of $14.50.

Snap shares are 14.7% below their initial public offering price of $17.

Read more about Snap's redesign here.

Markets Insider