TOP ANALYST: Snap's user base will be 'materially bigger' if it does 2 things (SNAP)
Snap has been living under the shadow of its $17 initial public offering price for much of the last three months, but things could be looking up soon.
According to Mark Mahaney, an analyst at RBC, Snap has to do just two things to see its stock price climb above its IPO price.
"The most important thing you need to make a decision on [as an investor] is whether you think they can reaccelerate their user growth and whether you think they can stabilize their ad-revenue growth," Mahaney told Markets Insider. "I think it can be materially bigger in terms of their user base with more engagement, and I think advertisers will follow that."
There is a decent chance this will happen soon, according to Mahaney. He says the company has some of the "best product innovation" in the space, and new features like the company's "Snap Map" will help drive user growth as soon as the fourth quarter of this year.
Investors have been comparing Snap's user growth to the massive size of Instagram and Facebook, which Mahaney thinks is unfair. While he said that Facebook has almost assuredly won the social media war, there is still room for Snap, and the two companies serve entirely different purposes.
"The financial markets use [the social-media companies] as substitutes for each other, but I don't think that's the case," Mahaney said. "I think people use Snapchat for visual messaging. I don't think people use Instagram for that."
The evidence of the company's turnaround is already surfacing. In the company's second quarter, it reported an additional 4 million daily active users, which was an improvement of 33% from the previous quarter.
With a stronger user base, the company will be able to attract more advertisers to the platform, Mahaney said. The company's engagement numbers are already really strong, especially with younger audiences that are desirable to advertisers.
RBC has a price target of $20 for Snap, and rates the company a buy. Despite the rating, Mahaney is cautious, and tempers his rating by saying it was issued when the company was in the middle of a post-IPO spike.
Snap is currently trading at about $14.77 and has risen 11.97% over the last month. It's still down 13.11% from its March IPO.
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