What’s Driven The Recent Rally In Snap’s Stock?

Snap Inc. (NYSE:SNAP) stock has underperformed the market for much of this year, due to the app redesign which caused a significant user backlash, weaker than expected Q1 results and slower projected growth for Q2. However, the stock rallied over the past week, rising from levels of about $10.50 to around $13, marking an increase of close to 25% (though it declined Thursday morning after an announced expansion in video by Facebook’s Instagram). Below, we take a look at some of the key factors that were likely behind the recent the rally in Snap’s stock price.

We have also created an interactive analysis outlining our expectations for Snap over 2018. You can modify the drivers to arrive at your own price estimate for Snap.

Positive Reports On Snap

Last week, research firm Citron Research published a bullish note on Snap, assigning the stock a 12-month price target of $17, indicating that it could see a return of about 30% from Wednesday’s close. This is well ahead of projected returns of FANG stocks. The report also indicated that Snap could be a takeover target. Another report from Pew Research indicated that Snap was now more popular than its rival Facebook with teenagers in the U.S. As teenagers are typically harder for marketers to reach, this could make Snap’s ad inventory relatively valuable.

Snap Is Looking To Undo The Damage Of The Redesign

There could be other factors at play as well. Over the last few weeks, Snap has been rolling out a new version of the Snapchat app that attempts to fix many of the user interface issues that plagued the major redesign the company unveiled late last year. The redesign didn’t go down well with core users, who found the UI changes unintuitive. With the new update, Snap is addressing key issues, including repositioning the Stories page to the right of the main Camera screen, while ordering Snaps and Chats chronologically (rather than algorithmically) on the Friends page.

Short Covering May Also Be A Factor

Short selling has also contributed to Snap’s underperformance over the year, with short interest accounting for 21.3% of the company free float as of last Friday.  It’s possible that the recent positive news surrounding the company is causing some short sellers to cover their positions fearing a short squeeze, pushing the stock higher.

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