Social media has transformed the way people communicate and interact with each other. With the Global X Social Media ETF gaining 19% year-to-date, it’s no question that this space has taken off. This fact has not been ignored by investors who are constantly looking for compelling opportunities within this sector.
Snap just got a vote a confidence from Evercore ISI’s Kevin Rippey, who upgraded the rating to a Buy on September 3.
However, the news surrounding Twitter hasn’t been as positive. The company announced on August 30 that the more than 15 offensive tweets sent from CEO Jack Dorsey’s account were a result of hacking. While TWTR stated that Dorsey’s account is now secure, the media sentiment surrounding the company remains resoundingly bearish.
With this mind, we wanted to take a closer look to see which social media stock analysts say will come out on top.
Let’s dive in.
Snap Inc. (SNAP)
The social media platform which is already up 189% year-to-date, has just convinced another analyst to get on board. It scored a ratings and price target boost from Evercore ISI analyst Kevin Rippey thanks to its foray into the gaming space. The transition into this area began in 2017 after gaming giant Tencent (TCEHY) bought 12% or 146 million of Snap’s shares.
Back in April, Snap announced the release of its game, Bitmoji Party. The game was developed after its January acquisition of the game studio behind Fruit Ninja and Jetpack Joyride, Prettygreat.
The game is actually a collection of mini-games that was designed to be a multi-player experience, according to Will Wu, Snap’s director of product and the lead on the gaming initiative. Management expects the game to drive an increase in the amount of time users spend on the app as well as revenue growth from ads. 6-second ads are displayed in the game, with the company planning to add other forms of monetization such as in-app purchases in the future.
By 2022, Snap predicts that up to 18% of its users will be playing games on the new platform which now includes six games in total.
With Snap’s management stating that they plan to raise $1 billion in short-term debt to further develop this segment as well as artificial reality features and content, Rippey likes what he’s seeing.
“Gaming provides SNAP a credible vector of incremental growth, naturally fitting with the platform’s differentiated appeal to younger cohorts looking for innovative digital experiences to extend real-world relationships,” the analyst explained. As a result, he upgraded the rating to a Buy and raised the price target from $18 to $20, implying 26% upside potential.
Twitter Inc. (TWTR)
Investors have not been happy since the August 30 news of the hacking, sending TWTR shares falling almost 2%.
The sounding of alarm bells among investors comes from new questions as to the company’s ability to protect high-profile accounts. If a hacker can breach a company executive’s account, can they breach President Trump’s? While Trump stated on August 30 that a cyber attack targeting his Twitter account “shouldn’t be too bad”, Wall Street isn’t so sure.
In the wake of the news, Twitter has pushed some of the blame onto the mobile provider, suggesting that Dorsey fell victim to SIM swapping. SIM swapping refers to someone convincing a mobile carrier to switch an existing number to a new SIM card they control.
“The phone number associated with the account was compromised due to a security oversight by the mobile provider,” Twitter’s communications team stated.
Regardless of who is to blame for the attack, Twitter already faces several other headwinds. The company is currently expecting a 20% year-over-year increase in operating expenses for full-year 2019 all while margins are contracting. Adjusted EBITDA was 35.4% of revenue in the first half of 2019, down from 37% in the year-ago period.
Cleveland Research analyst Chandler Converse believes that this suggests an issue with long-term growth. Based on this, the three-star analyst reiterated his Hold rating on August 27.
And the Winner is…
All in all, Wall Street picks Snap over Twitter. Snap boasts a ‘Moderate Buy’ analyst consensus and a $17 average price target. In terms of upside potential, Snap also comes out on top with analysts expecting to see share prices gain 8% in the next twelve months.
This is compared to TWTR’s ‘Hold’ analyst consensus and $41 average price target, which indicates downside of 1%.