Snap Inc. (SNAP) shares have experienced a significant surge of 39% over the past month, and according to Wells Fargo analyst Ken Gawrelski, there is even more upside potential for the stock. Gawrelski recently upgraded Snap’s stock rating from equal weight to overweight and raised the target price from $8 to $22. This implies that there could be an additional 40% increase in the stock’s value.
Gawrelski acknowledged that the drastic change in target may raise some eyebrows, but he pointed out that Snap’s stock had previously traded above $80 in mid-2021. He believes that the company is currently well-positioned to benefit from positive shifts in the small- to mid-capitalization internet sector. Gawrelski noted that industry sources indicate Snap’s recent efforts to rebuild its direct-response advertising capabilities have already started yielding positive results. He also highlighted that the changes made by Snap over the past several months have significantly closed the ad product gap with other audience platforms.
The introduction of privacy-related changes by Apple Inc. in April 2021 created challenges for ad-focused internet companies in delivering effective measuring and targeting capabilities that advertisers desired. However, Gawrelski suggests that advertising trends at Snap could be “positively inflecting” for the first time since these changes took place. He believes that Snap’s recent leadership changes in product development and advertising will drive faster innovation and revenue growth. Gawrelski mentioned that Snap has recruited talent from industry giants like Meta Platforms Inc. and Alphabet Inc. as part of its efforts to rebuild its direct-response ad platform.
Additionally, Gawrelski sees room for Snap to achieve meaningful gross-margin improvement. He believes that the company has significant potential to optimize its cost of goods sold, which would help it reach its long-term target of 70% gross margins. Gawrelski’s forecasts suggest that Snap could achieve 65% gross margins by 2027.
In summary, Wells Fargo analyst Ken Gawrelski remains optimistic about the future prospects of Snap Inc. He believes that the company’s recent improvements in ad products, talent acquisition, and potential gross-margin expansion will drive further growth in the stock value.