Richard Greenfield on 'Buy' Rating for Snap: 'Things Are Getting Better'

March 14, 2019

By Spencer Feingold

Richard Greenfield said Snapchat's improved content and advertising revenue growth are making the company an increasingly good bet, after his upgrade of Snap's stock to a "Buy" recommendation on Thursday sent the social media company's shares soaring.

“Things are getting better,” Richard Greenfield, a media and technology analyst at BTIG, told Cheddar. He said Snap investors are in a position to see the stock "beat and exceed expectations over the coming year.”

Snap’s stock was up 12 percent when trading closed on Thursday.

The announcement marked the first time BTIG gave Snap ($SNAP) a "Buy" recommendation since the company went public two years ago. In September of last year, BTIG downgraded Snap to a "Sell" rating; it was upgraded to "Neutral" in December.

Snap has been on the comeback trail in 2019 after spending much of last year recovering from the defection of its users to Facebook's ($FB) Instagram following an unpopular app redesign. Snap's woes were compounded by a stream of executive departures as well as a federal probe into whether the company misled the public about user metrics in the run-up to its 2017 initial public offering.

The company's recovery appeared to gain momentum in its most recent quarter. Snap beat Wall Street's expectations for its quarterly results released in February and CEO Evan Spiegel said the company was "substantially closer to achieving profitability."

In his note published on Thursday, Greenfield also pointed to revenue momentum. He told Cheddar that advertisers looking for return-on-investment ー particularly overseas advertisers ー are finding Snapchat increasingly attractive.

"Performance advertisers are laser focused on ROI and spend (and spend more) where they see a compelling ROI," he wrote.

The improved quality of content on Snap was another especially important factor in the upgrade.

The company is now “pushing down the influencers and increasing the profile of premium content,” Greenfield explained. BTIG had earlier concerns about low-quality and clickbait content on Snapchat’s Discovery section.

He added that advertisers are now finding the Snapchat platform increasingly attractive and a positive return on investment. He noted that Snap, and all mobile platforms, are now taking advantage of advertisers moving away from television and “legacy media.”

BTIG has long been skeptical of Snap. In his article, Greenfield said “virtually everything that could go wrong for Snapchat over the past couple years since going public has gone wrong.” He cited unrealized threats from competitors, the federal investigation into the company’s IPO disclosure, and poor management as causes for his hesitation.

With Thursday’s announcement, the company seems to have largely won over BTIG. “We don’t hate things or love things forever,” Greenfield said.

Greenfield did write, however, that the federal investigation into the IPO disclosure does remain a concern and could impact Snap's cash reserves.