Snap received a major boost from Barclays on Tuesday after the London-based financial giant upgraded its stock from neutral to overweight and told investors it feels this is a good opportunity to start buying larger volumes of shares of the social media company. The forecast was largely backed by the recently announced redesign of Snapchat, a gamble that Barclays believes could pay off in the long term, with its analyst Ross Sandler stating that "the worst is behind" the firm and Snap is likely to start hitting its revenue targets as soon as next year.
Snap was unable to maintain its momentum following its initial public offering in March which saw the company raise over $3 billion at a $24 billion valuation. While its shares are presently more than nine percentage points up and trade for nearly $15, that's still below their $17 IPO price. Snap's public listing was conducted simultaneously with the startup's proclamation that it's now seeking to become "a camera company," citing the camera-equipped Spectacles as its entry point into hardware and the first of many similar products to come. As per its consolidated financial report for the third quarter of the year, the firm severely overestimated the demand for its first hardware offering and was forced into a $40 million write-down on unsold Spectacles. Regardless, Mr. Sandler remains optimistic about Snap's prospects and has set an $18 target for current investors, citing Tencent's recent major buy-in which encompassed stock in the $14-$15 range as Snap's floor.
The upcoming redesign of Snapchat that's prioritizing iOS over Android will see the app transition to a more algorithm-reliant experience that will separate content made by friends from snaps posted by brands, although all stories will still be manually approved by Snap's curators. Barclays' analyst speculates such a change could boost user numbers like it did for Facebook and Twitter, albeit not all industry watchers remain convinced, especially as the redesign appears to cater to existing users instead of new ones. Since engagement rates were never a problem for Snap but stagnating growth recently became one, a number of analysts previously suggested that the upcoming redesign is trying to address an issue that doesn't exist while ignoring the one that does and is backed by hard numbers. Snap is also planning on rebuilding its Android app from the ground up in the coming months in order to improve its performance, which Mr. Sandler cited as yet another reason for optimism in regards to the company's 2018 results.