Snap stock enjoys best trading day since IPO as analyst predicts stronger user growth

Snap Inc. stock Wednesday enjoyed its best trading day since debuting on Wall Street, rising 11.4% as one analyst predicted user growth has been stronger than he originally expected.

Good days have been rare for the Snapchat parent company since its March 2 initial public offering, with Snap SNAP, +11.44%  shares struggling to rise above the $17 price the company initially charged in its $3.9 billion initial public offering. Credit Suisse analyst Stephen Ju, however, upped his price target to $20 from $17 and reiterated his bull case in a note to investors Wednesday, largely based on an raised daily active user estimate and technical changes that will improve advertising revenue.

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Of 35 analysts who cover Snap and have ratings, 16 rate the stock a hold or a sell, and six give the company a buy rating, according to data compiled by FactSet. The average price target is $15.26; Snap stock closed at $15.98 Wednesday, still more than 40% lower than its peak intraday price. The 11.4% gain in Wednesday trading topped Snap’s previous best day, its second day of trading on March 3, when it hit that all-time high.

Ju now believes Snapchat reached 78.2 million daily active users in North America during the third quarter, 3.2 million more than the previous quarter, which would account for an increase in revenue to $227.9 million for the quarter on a loss of 18 cents a share. Credit Suisse had previously estimated Snap would add 1.5 million daily active users in North America.

In addition to modeling more active users on the platform, Ju wrote that he believes Snap has made critical fixes to its advertising technology, as well as taken steps to improve the price for its ad inventory.

Ju projects the company turning a profit in fiscal year 2022, with projected losses of $3.5 billion this year. One reason for the outsize loss is the company’s stock-based compensation, which awarded nearly $2 billion to executives and insiders once the company went public. Ju projects a $1.17 billion loss in fiscal year 2018.

Snap shares have declined 22.8% in the last six months, while the S&P 500 index SPX, +0.18%  gained 8.4% in the same period.

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