Shares of Snap (SNAP) fell sharply in after-hours trading last night after Snapchat’s parent reported disappointing third quarter results, with a revenue and Daily Active Users miss, leading several analysts to downgrade the stock. While Snap would go back up earlier this morning after disclosing a 10% stake was taken by China’s Tencent (TCEHY), the stock quickly resumed the post-earnings plunge as Piper Jaffray analyst Sam Kemp argued that Tencent’s stake was “not a material thesis changer.”
SELL SNAP: In a post-earnings research note, UBS analyst Eric Sheridan downgraded Snap to Sell and cut his price target on the shares to $7 from $12. The analyst told investors that he finds it very likely that Snap will continue to struggle on “multiple fronts” in the coming 12 months. A redesigned app could bring opportunity but also platform disruption, Sheridan contended. The analyst argued that trying to scale its ad business amid “tepid” user growth while competing against Alphabet (GOOG; GOOGL), Facebook (FB) and Amazon (AMZN) is likely going to prove difficult for Snap. His peer at JPMorgan also cut the stock’s rating to Underweight, while lowering his price target on the shares to $10 from $14. Analyst Doug Anmuth pointed out that he believes the company’s app redesign carries “significant risk” as its “heavily engaged “existing user base could be disrupted. Snap has now reported below Street expectations in each of its first three quarters as a public company, he added. Meanwhile, RBC Capital analyst Mark Mahaney downgraded Snap to Sector Perform from Outperform and lowered his price target to $15 from $20, citing the third quarter revenue miss and worse than expected Daily Active User activity. Mahaney highlighted that North America revenue and gross margins were below estimates and average revenue per user of $1.17 was below his $1.23 view, even though the decline in adjusted EBITDA was less than expected. The analyst attributed the miss to a shift to programmatic ad impression and also noted that the company’s plans to redesign its Android platform version may be further disruptive to business in the short-term. Additionally, Stifel downgraded Snap to Hold, while Barclays cut the stock price to $11 from $13.
