Snap Inc. shares surged approximately 8.5% on Monday following a bullish upgrade from Rothschild & Co Redburn, which moved the stock to Buy from Neutral and more than doubled its price target to $10. The stock, which had been trading near $6.13, well off its 52-week high, saw a strong upward move as investors responded to the analyst's optimistic outlook.
Analyst Sees Profit Turn on Horizon
Analysts Joseph Barker and James Cordwell highlighted that artificial intelligence is driving a bifurcation in the online advertising market, with Meta Platforms widening its lead while smaller players scramble to keep up. Among the group, Snap stands out for its ability to diversify revenue, particularly through a subscription business that already exceeds $1 billion annually. The analysts predict Snap's core advertising could shift from an operating loss in 2025 to profitability by 2027.
Cost-Cutting and Layoffs
The upgrade comes as Snap pushes to reshape itself into a leaner, more profitable company. In April, CEO Evan Spiegel announced plans to cut about 1,000 jobs, roughly 16% of the full-time workforce, and eliminate over 300 open positions. The company aims to reduce its annualized cost base by more than $500 million by the second half of 2026, with artificial intelligence expected to automate repetitive tasks. The company anticipates $95 million to $130 million in charges related to the layoffs, most of which will hit in the second quarter.
Leadership Change
Snap also announced that CFO Derek Andersen will step down after the May 6 earnings call, with his departure effective May 8. Doug Hott, who has worked closely with Spiegel on strategy and restructuring for nearly seven years, will take over as CFO.
Fourth-Quarter Results
Snap's fourth-quarter results provided a foundation for the profit case. Revenue rose 10% year-over-year to $1.716 billion, with net income of $45 million. Monthly active users hit 946 million, while other revenue, including subscriptions, surged 62% to $232 million, driven by a 71% jump in subscribers to 24 million. Sponsored Snaps, the ad unit within the messaging app, also showed improved click-through and purchase rates.
Market Context and Risks
Despite Monday's rally, Snap stock remains about 14% below its 200-day moving average, according to Finviz. The Rothschild upgrade was the only analyst rating change for Snap on the day. Some analysts remain cautious. Russ Mould, investment director at AJ Bell, told Reuters that while cost-cutting may provide a short-term boost for "long-suffering shareholders," he is not convinced Snap can build a sustainable, profitable business. Regulatory pressures also loom, with governments increasingly targeting social media platforms that attract younger users.
Looking Ahead
Snap's next major catalyst is its first-quarter earnings report, due after the bell on May 6, followed by a conference call at 2 p.m. Pacific Time. Investors are currently buying into the promise of profit momentum, but full confirmation remains elusive.
