Why Goldman Sachs is getting more optimistic with instant actions

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Snap

The shares rose more than 5% on Tuesday after Goldman Sachs raised its target price and said the Snapchat parent company is likely to outperform its own projection for the fourth quarter.

Snap shares (ticker: SNAP) advanced 5.8% to $ 51.05 in the afternoon session.

In his positive note, Heath Terry, an analyst at Goldman Sachs, set a target price of $ 70 for the shares, above $ 47, justifying a 45% implicit increase in technological improvements and business partnerships that the company has announced since its third quarter results.

Based on researching data from third-party applications, Terry’s team concluded that Snap’s direct response ads remained strong during the latest Covid-19-related blocks and will contribute 8 percentage points above consensus estimates for growth of fourth trimester.

For the fourth quarter, analysts surveyed by FactSet expect sales of $ 844 million, which is equivalent to a 51% growth.

The rest of Wall Street is definitely not as enthusiastic about Snap’s actions as Terry. Analysts have an average target price of $ 42.12, which implies a 17% disadvantage for the stock. Of the analysts accompanying the company, 67% classify it as Buy and 26% as Hold. Only three analysts, or 8% of the 39 covering it, have a Sell rating.

Looking beyond the fourth quarter, Terry predicted that advertisers’ demand for online inventory would continue to grow – benefiting other social media stocks as well – as the TV audience fell and the economy recovered from the damage caused by related blockages. coronavirus.

And as demand for ads increases, Snap’s advertising tools continue to improve. Terry wrote that Snap’s efforts to give advertisers more information about their ad performance, including making an adjustment to a tool that helps customers optimize their advertising spend, will help customers get more value out of every dollar they spend on platform. Snap should collect more advertising customers or a larger share of spend from existing ad buyers if it can continue to demonstrate the benefits of using its tools.

Terry also highlighted Snap’s partnership with

Unity software

(U), maker of tools for video game developers, which will allow advertisers to place ads in games.

Unity has a large inventory and more than two billion monthly active end users, Terry noted. Because of the partnership, advertisers using Snap tools can now reach this vast user base, significantly increasing the size and availability of the ad inventory that Snap can sell. The deal also includes giving developers using the Unity platform access to a piece of Snap technology that makes it easier to get into games and applications.

The Snap stock had a strong year, rising about 200%, as a reference

S&P 500

index rose 16%. O

Nasdaq Composite

index increased by 45% in 2020.

Write to Max A. Cherney at [email protected]