Shares of Snap (SNAP) are falling after two analysts cut their price targets for shares to $7 citing decelerating user trends.
DECELERATING TRENDS: On Thursday, Evercore ISI analyst Anthony DiClemente lowered his price target for Snap to $7 from $9 given decelerating trends, management turnover, and competitive threats. The analyst told investors in a research note that he anticipates another quarter of sequential daily average user declines as competitive pressures in the wake of Snap’s app redesign, along with the seasonally weak third quarter, drive DAUs lower by 1M quarter over quarter. Further, DiClemente believes that competition, particularly from Facebook’s (FB) Instagram is “irreversibly” reducing Snap’s opportunity to deliver on long-term investor expectations. The analyst added that revenue estimates for Q3 do not seem “overly demanding,” however the stock is trading at the “loftiest” valuation in his coverage and it’s difficult to argue that investors would forgive a continuation of declining user trends. He also notes that there is no evidence to suggest that Snapchat is significantly expanding the pool of advertisers beyond its current base. DiClemente said given the lack of positive catalysts in the face of declining users, decelerating revenue growth and management turnover ahead of seasonally critical Q4, he is lowering his price target. He reiterated an Underperform rating on Snap’s shares.
MAINTAINING SELL: Despite the 44% decline in shares year-to-date, Citi analyst Mark May kept a Sell rating on Snap, but again lowered his estimates to reflect recent trends in user and average revenue per user growth, Q3 guidance and a projected 2018 exit growth rate. This results in May cutting his price target for the shares to $7 from $8. In support of his Sell rating, May cited the company’s recent executive departures, user trends in Q2 and continued operating losses. Further, May told investors in a research note of his own that he believes consensus 2019 revenue forecasts still appear too high and that Snap could be forced to raise additional capital in 2019 or 2020 without meaningful changes in revenue growth and/or operating leverage. He pointed out that despite the recent share price declines, short interest in the name has continued to rise and that Snap “still trades at a premium to most comps”.
