Snap is not a social media company – it's a camera company. Snapchat doesn't need to grow its user base – it needs only to continue innovating. Snap's competitors, chiefly Facebook, aren't a point of concern but a source of opportunity – the young upstart has a greater upside when it come to increasing its margins.
If none of that seems all that convincing, try this on: Buy Snap 'cause why the hell not.
That argument seems to be the implicit message behind the selfie app's biggest coup yet as a publicly traded company: receiving its first buy rating. The judgment from the boutique investment firm Monness, Crespi, Hardt & Co., which sees Snap rising from its current $20 range to around $25, means that no longer are credulous day-trading millennials the primary force buoying Snap's shares. Now a Wall Street dude says so, too:
Key to his argument is the idea that Snap thinks of itself as a “camera company.” While this self-description made for a tough sell to investors on Snap’s pre-IPO roadshow, Mr. Barry says it’s pivotal for Snap’s future success.
“What’s important to understand about Snap is that the end goal is much more than animal ears superimposed on images,” Mr. Barry writes, a reference to the gimmicky filters that Snapchat users can put on their photos. Rather, he says that Snap is best thought of as a “software-enabled portal” that “takes users to a decision tree on what to make of the captured memory.”
If that sounds like just the sort of impenetrable flim-flam that has propped up the early and unsustainable prices of tech Icaruses from Etsy to GoPro, well, it kind of is. Then again, the IPOs of Facebook and Google came drenched in waves of relentless technobabble as well, so who knows. The least we can expect is a strong measure of confidence in the analysts assigning the rating. Right?
"We recognize we are potentially giving too much credit for unproven skills in building a business, rather than just a product, but we see more to Snap than many suggest," Monness wrote in a note on Monday.
"There is substantial execution risk, but we’re prepared to give the benefit of the doubt at this stage knowing what we know about Snap, and knowing what we know about the efforts of competitors."
That's quite a few caveats for a buy rating! When “benefit of the doubt” enters into an investment thesis, it's probably time to just stick with the doubt. Then again, if you're giving credence to a buy rating faced with five holds and six sells, you're probably aware of the risk you're taking.
It's actually pretty refreshing to see a buy rating premised on a shrug. History is replete with surefire bets built on an edifice of quantitative insights suddenly crumbling when the foundation those numbers relied on turned out to be faulty. Why-the-hell-not seems a far more honest justification than “decision trees” and “software-enabled portals” and all that.
Regardless, if CEO Evan Spiegel is to be believed, Snap investors can go ahead and wait half a decade before expecting any sort of certainty about the company's viability. That gives us all plenty of time for groundless speculation, which is obviously where the action is anyway.