After months of taking a pounding over lackluster user growth and the inability to lure advertisers its way, Snap Inc. (SNAP), the maker of the disappearing messaging app Snapchat, is getting some love from Barclays, which upgraded its investment rating on the stock saying now may be a “good time” to start purchasing shares. The stock was up over 5% in pre-market trading.

In a research note to clients, Barclays analyst Ross Sandler raised his rating on Snap to overweight from equal weight and upped his price target to $18 from $11. At $18 a share, Barclays expects the stock to gain more than 32% based on Monday’s closing price of $13.57 a share. So far in 2017, it is down more than 55% after going public in March with an IPO price of $17 a share.

Barclays’ Ross thinks the Los Angeles-based messaging app company could start meeting or surpassing Wall Street revenue estimates in 2018 and said the narrative that Facebook (FB) is killing Snap by stealing away all its users and more importantly advertisers, will possibly change. "In short, we think the worst is behind SNAP and company is likely to get back on track in 2018," Sandler wrote in the report, which was covered by The Street.  (See more: Facebook’s TBH Buy Is a Bet Against Snap: Cramer.)   

In addition to improving revenue in the New Year, Barclays thinks there could be a short squeeze on any positive news given the high amount of short interest in the stock. Sandler also said the recent share purchase by Tencent (TCEHY), the Chinese messaging and gaming company, could create a floor for the stock at $14 a share.

In November, Tencent said in an SEC filing it purchased 145.8 million non-voting shares during the last quarter, which ended in September, giving it a 10% stake. Tencent had previously invested in Snap back in 2012 and then again in 2013. The disclosure of the stake purchase by the leading Internet player in China was supposed to calm investors who had sent shares plummeting after Snap reported disappointing results for its third quarter, marking the third straight three-month period in which Snap weighed in with lackluster results. Shares couldn’t find that support at the $15 level even with Tencent’s stake purchase, but Barclays thinks it will be at $14 a share.  (See more: Tencent Buys 10% Stake in Snap.)

Although Barclays is bullish about Snap's prospects, particularly in the teen and young adult markets, the waters got muddied again this week after Facebook announced a messaging app aimed at children between the ages of six and twelve. The ad-free, stand-alone messaging app that parents control from their own Facebook account, will have Snapchat-like features such as photo stickers. That could put further pressure on Snap and give Facebook a much needed boost in the younger demographics where it is struggling. While reporting third-quarter results, Snap’s Chief Executive and co-founder Evan Spiegel revealed the company is overhauling the app to make it more appealing to the masses, not just the young, tech-savvy set. The executive did warn that the overhaul of the app will hurt the business in the short term and that it's not clear how it will be received by its core base of users. “We’re willing to take that risk for what we believe are substantial long-term benefits to our business,” Spiegel said at the time.

 

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