The No.1 investment bank on Snap's IPO is projecting massive growth for the company (SNAP)
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Snap's stock price is surging after Morgan Stanley, the lead bank on the tech firm's initial public offering, slapped a $28 price target on the stock.
The US investment bank is one of a slew of Wall Street houses that initiated coverage with "Buy" and "overweight" ratings on Snap March 27.
Morgan Stanley says it sees a tremendous opportunity for Snap to monetize its ~160 million daily active users.
Snap currently has an ad load of 0.6 ads per daily active user per hour, which is only 1/50th of Facebook's ad load.
If Snap can achieve the bank's projections of ~8 ads/DAU/hour by 2020, Morgan Stanley says Snap can grow ad revenues 87% in the next four years, even if daily active users only grow at 11%. That would equal around $4.9 billion in ad revenue by 2020.
The bank says it has high hopes for Snap because the company has "a highly engaged, hard to reach audience."
The note said:
We are bullish about Snap’s ability to monetize its highly engaged daily active user (DAU) base (~160mn DAUs spending an average of 25-30 mins/day). First, we believe Snap’s millennial audience (86% of N. American DAUs aged 13-34) and differentiated online video ad inventory are in demand by advertisers ... and Snap’s growing direct ad sales efforts, recently opened advertising API (with 15 ad partners), and continued ad unit innovation will pull ad dollars toward their platform.
With that said, Morgan Stanley still doesn't see Snap turning a profit until 2020.
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