Why Snap Stock Fell Today

Market trading boards are seen at the Australian Securities Exchange in Sydney, Friday, February 9, 2018. ( AAP Image/Ben Rushton) NO ARCHIVING

What happened

Shares of Snapchat parent Snap (NYSE: SNAP) have fallen today, down by 5% as of 3 p.m. EDT, after two Wall Street analysts expressed bearish sentiments regarding the social media company. Coincidentally, both cut their respective price targets on Snap stock to $7.

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So what

The two firms in question are Citi and Evercore. Citi reiterated a sell rating on the stock and analyst Mark May reduced his price target from $8 to $7, citing a string of recent executive departures (most notably including Chief Strategy Officer Imran Khan), deteriorating user trends, and poor guidance, among other reasons. May also believes that Snap will need to cut costs or raise capital within the next two years if the company is unable to improve its financial performance. Short interest also remains high, despite the stock's ongoing declines, suggesting that investors believe more pain is in store.

Evercore echoed many of the same sentiments, with analyst Anthony DiClemente cutting his price target from $9 to $7 while reiterating an underperform rating. DiClemente is particularly concerned about competition from Facebook's Instagram, which the analyst believes is "irreversibly reducing" Snap's long-term opportunity. Like Citi, Evercore is also troubled by executive departures and user trends.

Now what

Snap's latest earnings report was especially discouraging, as it included the first user decline on the platform. Management attempted to blame the poor results on its controversial redesign (again), and the cost structure remains unscalable. The only silver lining was that Snap began issuing financial guidance for the first time. While that provides investors with more transparency, the outlook wasn't all that great. Adjusted EBITDA in the third quarter is forecast at negative $160 million to negative $185 million.


Snap shares have now fallen to all-time lows following the analyst reports.

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Evan Niu, CFA owns shares of FB. The Motley Fool owns shares of and recommends FB. The Motley Fool has a disclosure policy.

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