Snap's Stock is Having Its Best Month in Three Years, and Jefferies Expects More Gains

In November, Snap Inc. shares have surged by nearly 30%, marking their most impressive monthly performance in over three years, and a Jefferies analyst is optimistic about the continued momentum. James Heaney from Jefferies upgraded Snap's stock rating from hold to buy, citing potential revenue growth upside in the coming year.

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According to Heaney, Snap has made significant strides with its direct-response advertising platform, which he believes will lead to enhanced advertiser performance and accelerated budget growth in the future. He has already observed positive outcomes from recent changes, noting that Snap's 11% sequential growth in the latest quarter represented its best third-quarter year-over-year growth since 2020.

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Heaney acknowledged that the rebuild of the direct-response ad platform initially had a temporarily negative impact on large advertisers, but this trend is already reversing. He anticipates this reversal to contribute to Snap achieving revenue growth at a mid-teens rate in 2024. Additionally, Heaney sees the decision to enable on-platform checkout with Amazon as a signal that Snap is strengthening its ties with large advertisers to stimulate more ad spend. Consequently, he raised his price target on Snap's stock from $12 to $16.

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The analyst also expressed positivity about Snap's positioning for the remainder of the year, highlighting that the company's internal fourth-quarter outlook was conservative due to caution surrounding the impact of the conflict in the Middle East. Snap shares were up nearly 3% in Thursday's premarket trading, building on the 29.7% gain recorded so far in November. This places Snap on track for its fourth-best monthly gain on record and its most robust monthly performance since the impressive 50.9% surge in October 2020.

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In addition to the Snap upgrade, Heaney also elevated his rating on Pinterest Inc. shares, moving from a hold stance to a buy rating. The Jefferies team, including Heaney, now expresses increased confidence in the possibility of achieving 20% or more revenue growth in 2024 for Pinterest.

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They anticipate a shift in ad pricing from being a major headwind to a tailwind in fiscal 2024, suggesting that Pinterest would need a significant deceleration in impression growth to miss next year's expected mid-to-high teens revenue growth. Consequently, Heaney increased his price target on Pinterest shares from $32 to $41, and premarket activity showed a roughly 2% advance in Pinterest shares.

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