Snapchat’s parent company Snap Inc. (SNAP - Free Report) has soared 6.9% to $24.32 as of 1:50 PM EST on Monday. Wall Street’s top brokerage analysts have released their recommendation of Snap’s stock to a “Hold” or “Buy” position leading to today’s healthy rise.
When Snap IPO’d in March, the majority analyst sentiment settled at a “Sell” recommendation. However, this morning, top analysts from major banks including Goldman Sachs (GS - Free Report) , Morgan Stanley (MS - Free Report) and Credit Suisse (CS - Free Report) released a “Buy” rating for Snap based on the company’s potential for revenue growth and monetization.
Brian Nowak of Morgan Stanley, who issued a “Buy” rating and a $28 price target, said, “We believe Snap's millennial audience and differentiated online video ad inventory are in demand by advertisers, and Snap’s growing direct ad sales efforts, recently opened advertising [for third parties], and continued ad unit innovation will pull ad dollars toward their platform.”
This turnaround for Snap began last week as analysts came out with the company’s first buy ratings. Snap’s first buy rating released last Monday from boutique equity research firm Monness and the second was followed by Drexel Hamilton last Wednesday.
But wait… there’s more to the story.
Let’s take a moment to step back and reflect on what’s happening here: Isn’t it strange that these brokerages came out with their bullishness recommendations all at once? Oh, and did you know all of the banks that gave Snap a positive rating were also their underwriters?
What we’re seeing is the expiration of Snap’s underwriters’ waiting periods. After an IPO, there is a lockup period for underwriters where they cannot release their research on a company they take public.
Great, so that explains that.
But wait, it still seems extremely controversial that the banks which took Snap public released great reports on the company when the rest of Wall Street was bearish. I mean, why wouldn’t they want to increase positive sentiment? Snap’s stock rising is only beneficial to them.
Fortune tells us not to completely dismiss the ratings. It’s important to remember that, while there seems to be bias, analysts would not recommend failing stocks to underwriters’ clients. Also, these analysts have greater transparency to Snap and can provide a clearer understanding of what to expect due to their access to information.
As a whole, Snap has an average target price of $23.67. Today, 12 analysts are calling a “Buy” rating, 11 stand with a “Hold” recommendation, and 6 giving a “Sell”.
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