The rating for Snap (SNAP) shares was boosted to Overweight from Equal Weight at Wells Fargo on Monday. The investment bank also raised its price target for the stock to $22 from $8 per share.
Analysts said in a research note that the social media company is poised for a positive growth inflection. SNAP shares have risen more than 4% in premarket trading.
The firm sees "advertising positively inflecting at Snap for first time since Apple's privacy initiatives in April '21." In addition, Snap's reinvestment in its ad tech stack, new ads management and renewed focus led them to raise estimates for the company.
"With a renewed focus on cost discipline, we see high flow through to EBITDA and estimate 2024/2025 of $517M/$1.01B, 98%/55% above the Street. While Snap shares have had a strong recent run of outperformance (+39% vs. QQQ since 10/31), market sentiment (9 buy/33 neutral/4 sell) remains quite cautious, and we see growth sustainability beyond easy 4Q/1Q revenue comps as the key hurdle to turning sentiment," the analysts wrote.
"We believe changes made over the past several months have meaningfully narrowed Snap's ad product gap relative to other audience platforms," added the analysts. "We view Snap's recent product and ads leadership makeover as key to faster product innovation and revenue reacceleration."
Furthermore, Wells Fargo sees "meaningful gross margin improvement in 2024 and beyond" for Snap as they "view around $100mm of incremental '23 infrastructure spending as semi-fixed."