Snap Stock Back to IPO Price on Q2 Growth News

Many analysts aren't agreeing with the company's valuation yet.

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Following Tuesday’s Q2 2019 earnings release, Snapchat’s corporate parent Snap Inc. saw its share price rebound to IPO levels Wednesday morning. Investors were embracing the stock on news that Snapchat was able to grow its base of daily active users by 13 million during the quarter.

Snap shares surged as much as 17.5% Wednesday morning over Tuesday’s closing price, at one point trading at $17.43 — a new 52-week high. The company made its Wall Street debut with a share price of $17 in March of 2017. Shares have traded below that price ever since March of last year, reaching an intraday low of $4.82 last December.

Much of Snap’s past woes were attributable to slowing growth, especially in light of competitors like Instagram and TikTok adding many millions of new users. Q2 marked the second quarter in a row that Snapchat was able to grow its user base sequentially, and management predicted that it would further grow its user base in Q3 during the company’s earnings call.

That sentiment was echoed by UBS analyst Eric J. Sheridan, who predicted in a note to investors Tuesday that better-than-forecast user growth may once again be in store for the next quarter. Sheridan also argued that Snapchat would be able to sustain its growth, and add as many as 50 million additional users by 2022.

Other analysts were also striking a more positive tone on Snap, with MoffetNathanson’s Michael Nathanson noting: “Big picture, we have improving (daily average user) trends, accelerating ad revenues, lower cost growth and positive earnings revisions.” However, Nathanson wasn’t read to call it a Cinderella story just yet, arguing that the company was ultimately overvalued, and that some of those newly-acquired users may jump ship again, lured away by TikTok.

That’s why most analysts still target Snap’s share price below its IPO pricing, even after Tuesday’s earnings release. To prove them wrong, Snap not only has to continue to grow users, but also turn those eyeballs into revenue numbers that would warrant a higher valuation.