Both Snap Inc (NYSE: SNAP) investor optimism and Snap stock’s share price are at all-time lows following a horrendous first-quarter earnings report. Even after a 22 percent post-earnings crash on Wednesday, analysts still see further downside risk to Snap stock.
Snap started 2018 on quite a high note, beating Wall Street expectations for earnings, revenue, daily active users and average revenue per share in its fourth-quarter earnings report. Snap stock jumped nearly 30 percent to as high as $21.22 following that blowout report and was up more than 40 percent year-to-date in early February.
[See: 7 of the Best Tech Stocks to Buy for 2018.]
Three months later, SNAP stock briefly dipped below $11 on Wednesday, and there seems to be no guarantee it won’t be heading lower in the months to come.
The company had made big promises about how its Snapchat app redesign would make the platform more appealing to advertisers. Instead, the redesign frustrated many users. Advertisers clearly weren’t impressed either. Snap said it expects revenue growth to “decelerate substantially” due to ad pricing pressures and admitted it has been having “challenging conversations” with advertisers.
Piper Jaffray analyst Sam Kemp says Snap can’t afford this type of misstep with such strong competition coming from Facebook ( FB) subsidiary Instagram.
“Snap is a poorly structured company that is demonstrating a clear pattern of mismanagement,” Kemp says. “We think the negative news cycle around Snap will continue, and advertisers will likely continue to approach Snap skeptically.”
Morgan Stanley analyst Brian Nowak says investors should keep their distance until Snap demonstrates improvement and consistency. He says investors shouldn’t expect either in the near future.
“User churn and behavior disruption related to the major redesign, poor app performance on Android devices, and advertiser concerns around engagement and the new segregation of sponsored content all created headwinds to monetization, which we now expect to continue into Q2,” Nowak says.
[See: 10 Great Tech ETFs That Stay Under the Radar.]
In the meantime, Nowak says Snap stock will likely continue to trade at a steep valuation discount to its online advertising peers.
“We believe a discount is warranted given SNAP not only has lower margins than the rest of the peer group, but we also do not expect it to generate positive cash flow until 2022,” he says.
Piper Jaffray has a “neutral” rating and $11.50 price target for Snap. Morgan Stanley has an “underweight” rating and $8 target for SNAP stock.
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Snap Inc Stock Sell-Off May Not Be Over originally appeared on usnews.com
