The Hits Keep On Comin': Another Analyst Is Bearish On Snap

Snap Inc SNAP went public on March 1, with an IPO price of $17.

Citing several concerns related to Snap, Cantor Fitzgerald’s Youssef Squali said in a report its 2017 DAU [daily average users] and monetization performance would indicate whether the company is the next Facebook Inc FB or the next Twitter Inc TWTR.

Squali initiating coverage of Snap with an Underweight rating and a price target of $18.

Concerns Abound

Squali mentioned the following reasons for the Underweight rating:

• Rich valuation
• Snap’s model is still “unproven” and marketers are largely considering their spend as “experimental”
• An inexperienced management team
• Decelerating growth trends in DAUs and monetization in the last couple of quarters
• Intense competition
• Followers who “enjoy greater scale in consumer reach, R&D and brand”

Related Link: Is Snapchat's Snap Another 'Junk' IPO?

Slowing Growth Trends

Although user and monetization growth accelerated in the first half of 2016, this was partly on account of product launches in late 2015, and growth subsequently decelerated significantly “due to technical issues around product updates, but more importantly, in our opinion, due to competitive pressures from the launch of Instagram Stories in mid-2016,” the analyst noted.

Citing the intensely competitive landscape, Squali commented, “Sequential DAU and monetization growth throughout 2017 will be key in determining the growth curve of Snapchat, and whether it's more likely to mimic Facebook in its user/ advertiser appeal or Twitter.”