Snap Stock Downgraded On Analyst's 'Dented' Confidence

Snap Inc SNAP is trading 34 percent above its all-time low struck in August, and Deutsche Bank doesn’t think it’ll get much better in the short term.

“After broad conversations across the ad ecosystem over the last month, feedback was decidedly mixed,” analyst Lloyd Walmsley wrote in a Monday note.

“While Snap has improved its ad platform (particularly around measurement), negative headlines and fierce competition have reduced the interest level in Snap advertising.”

Unimpressed by his investigation, Walmsley decreased estimates for third-quarter ad revenue growth from $102 million to $61 million, downgraded the stock to Hold and lowered his price target from $20 to $17.

Justified Hope

However, Deutsche Bank sees potential for accelerated advertising driven by continued improvements to the self-service platform, fresh outreach to influencers and increasing investment in application program interface. These factors are expected to boost second-half revenue “and could ramp faster than we have modeled.”

At the same time, Walmsley’s encouraged by trending growth in daily active users.

“We continue to see Snapchat as a product innovation powerhouse,” he wrote. “Despite intense competition, DAUs continue to march higher, and eventually products like Snap Maps could drive DAU growth re-acceleration, potentially even in 3Q.”

Any such benefits won’t manifest immediately, though.

“We believe new products may take longer to improve the DAU trajectory and note a reduced imperative for advertisers to experiment with Snap advertising,” he wrote, referencing competition from Facebook Inc FB’s Instagram.

At the time of publication, Snap was trading at $15.16, down 1.2 percent on the day.

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