February 7, 2018 / 12:16 PM / 10 months ago

Snap shares surge after app redesign sparks user growth

(Reuters) - Shares of Snapchat owner Snap Inc (SNAP.N) surged 35 percent on Wednesday after the company reported its first user growth since going public in 2017, sign that a redesign of its messaging app is taking hold in its battle with Facebook’s (FB.O) Instagram.

The stock pushed past its IPO price of $17 for the first time since July last year and as many as 10 Wall Street analysts raised their price targets on the stock.

Snapchat had earlier worked better on Apple phones but the Android version had issues. The company said that after fixing those software bugs, customers were now staying longer on the Android version of its app.

“Snap made significant progress on redesigning the user experience, with some proof points around engagement,” Canaccord Genuity analyst Michael Graham said. “Of course, expectations were low, but investors should gain confidence from this execution.”

CEO Evan Spiegel said the redesigned app will fully roll out in the current quarter.

Traders look up at a screen that displays trading information for Snap Inc. on the floor of the New York Stock Exchange (NYSE) in New York, U.S., May 11, 2017. REUTERS/Brendan McDermid

Advertisers are also taking to an auction-based advertising system that made it cheaper and easier to buy ads on Snapchat.

“Advertiser count on auction doubling sequentially, which speaks to the company’s efforts to date to evangelize the platform,” Credit Suisse analyst Stephen Ju said.

Analysts, however, warned that the company still has significant challenges ahead.

“A good quarter doesn’t change our fundamental view that Snap has its work cut out to continue to deserve a premium multiple,” Jefferies analyst Brent Thill said.

Snapchat faces stiff competition from Instagram, which has more than twice the daily users of Snapchat and threatened to stamp out Snapchat by copying features such as photo filters and disappearing slide shows.

Most analysts still view Facebook as better positioned to corner a bigger share of advertisers than Snapchat.

Only five of 36 brokerages rate Snap as “buy” or higher, 18 “hold” and 13 “sell” or lower. Their median price tag was $12.50. RBC Capital Markets analysts were most bullish with a price target of $21.

The stock was up 35 percent at $19.08, notching its biggest one-day gain since its debut.

Additional reporting by Supantha Mukherjee in Bengaluru; editing by Patrick Graham and Saumyadeb Chakrabarty

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