Jefferies Cautious On Snap, Says Trends Are 'Not Encouraging'

It's too early for a bearish stance on Snap Inc SNAP, but the social media platform's recent engagement and user trends are "not encouraging," according to Jefferies.

The Analyst

Jefferies' Brent Thill maintains a Hold rating on Snap with a price target lowered from $14 to $11.

The Thesis

The most recent third-party data analysis of Snap's user engagement in multiple countries shows daily active users and time spent on the social media platform are trending in the "wrong direction," Thill said in a Wednesday note. 

Third-party findings from SimilarWeb shows U.S. DAUs are near their lowest level since July 2017, and U.S. time spent on the platform peaked around July and has been trending lower on a month-over-month basis since then, the analyst said. 

Similar trends are being observed in key international markets including the United Kingdom, Spain, Germany, France and Australia, Thill said. If these global trends continue to worsen as users churn to rival social media platforms, it could "cause a negative flywheel" effect, as remaining loyal users have less of a reason to remain on the platform themselves, he said. 

Snap's efforts to offer a compelling Android experience remain a concern, as a full product has yet to be released, the analyst said. A proper platform on Android devices is vital for the company to fuel growth, especially in Android-dominated regions, he said. 

The general advertiser sentiment on Snap's platform is "neutral to slightly positive," and management has succeeded in shifting from large brands to smaller advertisers thanks to targeting, measurement and conversion tracking tools, Thill said. Yet if user metrics continue to trend negative, it is appropriate to ask how long advertisers will remain on the platform if user numbers aren't growing, he said. 

Price Action

Snap shares were falling 9.44 percent to $8.96 at the time of publication Wednesday. 

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