Snap. Inc shares are soaring after analysts at BTIG have turned bullish on the outlook for Snapchat. Up more than 12% on the day, there were a couple of notes from BTIG analyst Richard Greenfield that got volumes surging in the fledgling tech company. In my view, the logic of his reasoning could be sound in the near term, but his $15 price target looks a stretch, and he could potentially be misunderstanding what is really going on with SNAP.

BTIG Upgrade Snap Inc. Price Forecast to Bullish from Neutral

Snap stock ended the day with a 12% surge. | Source: Yahoo Finance

Here are some soundbites from his opinion and why they have suddenly turned bullish:

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“Your initial reaction is likely why now and what changed, as virtually everything that could go wrong for Snapchat over the past couple years since going public as gone wrong,”

Fine, so far. Down more than 70% at its lows, Snap Inc. was one of the most over-hyped tech IPOs ever. It was incredible how many investors outside of Snapchat’s target age group were talking about how much “young people” loved the brand. Anyone in their late teens or twenties knew that they probably had it installed on their phone but hadn’t touched it for months. I remember when Instagram launched their story feature the same week as the IPO, and I racked my brain to try and come up with a single advantage Snap had, and I couldn’t come up with one. Snap’s growth cratered 82%.

Okay, Snap fans, the filters were cool, but Facebook Messenger has that now anyway. Even the privacy feature was redundant because you sent a picture and the other person could just screenshot it, making the limited viewing period completely useless!

Back to Mr. Greenfield’s hypothesis as to why we should be confident Snap will continue to rise, this time related to revenue:

“Performance advertisers are laser-focused on return on investment and spend (and spend more) where they see a compelling return. We are increasingly confident that overseas direct response/performance advertisers are taking advantage of low relative bid prices on ad inventory in the U.S. The good news for Snapchat is that performance advertising can scale rapidly enabling meaningful revenue beats.”

Bears Bail Out as SNAP Price Rises

Okay, point taken. The company could sneak into profit, maybe. But do you think that some foreign ad sharks are going to hang around if Snap’s ad prices increase? Is this money-losing company going to be worth nearly 50% more because of an arbitrary move from the red to barely in the black? Probably not. What BTIG analysts are doing here is hopping out of their neutral view at a risk-appropriate time.

The rise in Snap is actually for a much simpler reason than the analysts (whose job is to pretend there are always structured, number-related reasons for price moves) want to tell you. The price got low, and SNAP has a sticky brand. Its numbers have held up just well enough to warrant some speculation at the current valuation amid a broad risk-on rally in markets. This is when investors find it easy to take a glass-half-full approach.

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