JMP upgrades Snap stock to Buy ahead of app redesign, stock up

Investing.com -- Snap shares rose 2% in premarket trading Wednesday after JMP Securities analysts upgraded the stock from Market Perform to Outperform and set a price target of $17.

The firm’s bullishness on the stock is driven by the potential for Snapchat’s new design, Simple Snapchat, to boost user engagement and ad revenue growth.

Analysts believe that Snap's redesign, which simplifies the app to three screens, will make the Spotlight feature more accessible and increase its usage. This change is expected to enhance overall user engagement, particularly among users over the age of 18, who make up approximately 80% of Snapchat's user base.

JMP anticipates that the introduction of Sponsored Snaps will significantly contribute to ad revenue growth in 2025.

With users opening Snapchat around 40 times a day, the majority of engagement occurs within messaging. The new Sponsored Snaps feature allows advertisers to place messages within users' inboxes, potentially adding an estimated $180 million in incremental ad revenue, “which is ~4 points of advertising growth based on our 2024 advertising revenue estimate of $4.9 billion,” analysts said.

“While we acknowledge these new formats cannibalize the Snap Ads auction to a certain extent, with consensus expecting 14% revenue growth for 2025, we do not believe consensus is capturing the upside potential of Sponsored Snaps,” they added.

In discussions with marketers, JMP has gathered that Snap is showing progress in the direct response (DR) advertising sector.

Positive results have been reported by large performance marketers, including travel companies. DR is believed to have comprised about 70% of Snap's advertising revenue in the previous quarter.

At the same time, JMP analysts highlighted several risks to their outlook, including concerns about Spotlight’s content and algorithm, which they believe lags behind competitors. They also pointed out that "Snapchat’s creator strategy does not support Spotlight," and noted that consensus estimates rely on significant margin expansion, "leaving little room for investment."