Snap Inc (NYSE: SNAP) came in ahead of Street estimates in its fiscal fourth quarter – but the company’s quarterly earnings were not enough for a Wells Fargo analyst to remain bullish on it.Ken Gawrelski downgraded Snap stock this morning and lowered his price target to $11 that no longer suggests a meaningful upside from current levels. “Downgrading SNAP as the app redesign is taking longer and ad revenue growth remains stubbornly below industry levels,” he told investors in a research note today.Versus their 52-week high, Snap shares are down close to 40% at writing.
Snap stock downgraded on planned reinvestments
Wells Fargo lowered its rating on Snap stock today also because the social media company is gearing up for a period of aggressive reinvestments.“Solid revenue trends are not enough to outweigh the period of reinvestment, leading to meaningful cuts in our EBITDA forecasts,” the investment firm added in its report on Wednesday.The investment plans made Snap Inc guide for $40 million to $75 million in adjusted earnings for its first financial quarter. Analysts, in comparison, were at a higher $78.5 million instead.And Snap shares do not current pay a dividend to remain attractive for income investors amidst muted expectations for future earnings.
Snap’s been slow in rolling out app redesign
Snap Inc guided for up to 15% annualised increase in its adjusted operating expense this year – sharply above 6.0% it had forecast before.The company attributed the increase in its full-year expense expectations primarily to headcount investments followed by legal and compliance costs.Additionally, Snap has been rather slow in redesigning its app and is, therefore, not very likely to reap the expected engagement growth benefits in FY25, according to Ken Gawrelski.“Simple Snapchat, now being tested in nearly all markets, reached 25M+ users (only < 5.0% of Snap’s MAUs),” he revealed, adding the redesign has helped with content consumption, but not with improving engagement so far.
The silver lining for Snap shares
Wells Fargo cited slower advertising growth as it trimmed its revenue growth estimate to 13.2% for FY26.Despite the dovish call, the investment firm continues to see things change for Snap stock if its rival TikTok is indeed banned in the United States eventually. “Estimate ~18% accretion to our Snap FY26 revenue estimate should TikTok be banned in the US,” wrote analyst Ken Gawrelski. Estimates for the company’s FY26 EBITDA could go up by 15% if it manages to win just 5.0% of TikTok’s US ad budget. Note that Snap ended its fourth quarter with 453 million in global daily active users (DAUs) – well above 451.1 million that experts had forecast. Its average revenue per user (globally) stood at $3.44, in line with expectations.More By This Author:Has Google Stock Become A Value Trap For Investors?
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