Snap's Earnings Report Reinforces Nomura's Bearish Initiation

Nomura's Anthony DiClemente initiated coverage of Snap Inc SNAP shortly after its initial public offering with a Reduce rating and a $16 price target. After the social media company reported its first ever earnings report as a public company, the analyst's stance remains unchanged.

DiClemente highlighted in a research report following Snap's earnings his original thesis that the company's IPO comes at a time when its user and monetization growth both started to show signs of meaningful deceleration. In the recent quarter, Snap showed its ad revenue and average revenue per user growth rates decelerated substantially — as has been the trend during the quarters leading into its IPO.

Simultaneously, Snap also has to contend with the competitive landscape, which includes "deeper-pocketed" rivals such as Facebook Inc FB.

'Quite Lofty' Valuation

Given Snap's monetization and growth woes, coupled with the competition, the stock's valuation looks "quite lofty."

In addition, the analyst noted many people thought the company's initial quarters of monetization would "follow more of a benign path," as advertisers have the potential to put experimental ad budgets to work, but at the end of the day, the company's numbers don't support this thesis.

Bottom line, the analyst's revenue growth estimates will be revised lower in his model. As such, a Reduce rating on Snap's stock remains in place with a price target lowered from $16 to $14.

In pre-market trading Thursday, shares were down 21.19 percent at $18.11.