Snap (SNAP) is trading 4% higher after numerous Wall Street firms rolled out their recommendations on the stock this morning.
Despite Snap's lofty valuation, most sell side analysts were positive in the stock.
After mostly negative calls from analysts since the IPO, at least fifteen firms initiated coverage on Snap this morning. Nine recommended purchasing the stock, with a Buy or equivalent rating, five gave a Hold or equivalent rating while one recommended selling the stock.
Snap is expected to grow revenue more than 150% to just over $1 billion this year and then roughly double revenue to just over $2 billion next year.
Investors are paying up for this impressive top line growth. At $23/share, Snap trades at ~32x 2017 sales and ~16x 2018 sales. Social network behemoth Facebook (FB) trades at 10.7x and 8.4x sales, respectively. However, Facebook also trades at 16.5x EV/EBITDA while Snap is far from profitable at this juncture. Still, much like Facebook, there is a ton of operating leverage potential if Snapchat can remain relevant and scale its mobile advertising business.
Snap's current $33 billion valuation seems to price in much of that future potential, so the company will have to grow into its valuation from here.
Snapchat's ephemeral messaging put in on the map with millennials. The app has kept its users engaged with innovative features that include augmented reality. Corporate partnerships have since made it a whole new kind of media platform.
Snap will scale its advertising business over its 158 million (daily active) user base, but investors will want to see that user base grow to avoid the Twitter (TWTR) stigma. For now, Snap is focused on developed markets only, because Snapchat requires a quality smartphone and cellular network.
Technically, the stock looks good above the $23 level, which had provided some resistance since the IPO.