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Snap Inventory is rising on optimism about augmented actuality e-commerce and advert progress in 2021

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Co-Founder and CEO of Snap Inc. Evan Spiegel.

Matt Winkelmeyer | Getty Images

Snap's stock closed nearly 5% on Thursday after reports highlighted the company's augmented reality strategy for e-commerce and the potential for 20% growth in online advertising in 2021.

Deutsche Bank released a notice on Wednesday stating that it raised its target price on Snap from $ 40 to $ 48 based on how the company's augmented reality (AR) technology is a foundation for success in e-commerce.

With AR, users can overlay computer-generated images over images they capture of themselves or the real world around them. This could be a superimposed virtual version of a sneaker that they might want to buy over their feet, or the use of a lens showing them what they would look like as an anime character.

"We believe sponsored lens / filter ads on Snap are more scalable than most investors believe, and are more explicit in adhering to the company's previously somewhat vague e-commerce strategy," Deutsche Bank wrote. "We believe the company is on the verge of rolling out more AR shopping experiences, including virtual stores."

In particular, Deutsche Bank notes that the opportunity for AR lens and filter advertising could generate $ 4 billion in revenue over the next few years. Gucci and Champs Sports are already among the brands that have used the technology to allow users to try on virtual sneakers.

In addition, Morgan Stanley released its own analysis on Thursday that explains why online advertising can grow 20% in 2021. The press release highlights digital ad trends associated with a surge in e-commerce could be persistent and branded advertising will return in the third quarter.

"By and large, we continue to view advertising as cyclical and see faster GDP growth leading to more advertising spending in more industries … as companies spend to reach the recovering / reopening consumer," the analysts said in the message.

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Katherine Clark