Even before Snap (SNAP -0.25%) went public, there were already concerns around slowing user growth. Snap's initial S-1, which was filed months before the IPO, showed that daily active user (DAU) growth was already grinding to a halt on a sequential basis. The market had learned its lesson on Twitter, and investors are wary of enduring the same thing again. Too bad those concerns didn't stop Snap's IPO from pricing at absurd valuation levels, potentially setting investors up for disappointment.

The first public earnings release showed a modest improvement in sequential DAU growth to 5%, but fears still linger. Shares lost 4% yesterday on concerns that slowing user growth in the second quarter could exacerbate, after Nomura analysts issued a research report to that effect.

Spectacles banner on the side of a building

Image source: Snap.

Downloads are down -- by a lot

The analysts note that global downloads of Snapchat have fallen by 22% year over year in the first two months of the second quarter, according to data from SensorTower, a mobile app analytics company. In contrast, Facebook's Instagram saw downloads jump, continued evidence that its strategy of copying Snapchat's best features is indeed paying off. There were already signs of that, as Instagram Stories already has more DAUs than all of Snapchat.

The drop in downloads is particularly pronounced on the iOS App Store, where downloads plunged by 40% during the time frame. That could be the result of a tough comparison, since Snapchat released lenses a year ago, and Snap has long maintained that user growth is tied to new feature introductions.

At the same time, Snap has been focusing on improving the performance of its Android app, which has long been plagued by technical problems and remains a thorn in the company's side. On the earnings call, CEO Evan Spiegel said that Android users accounted for 30% of net additional users in the first quarter.

Time to sell?

Nomura is one of the more bearish firms on the Street, maintaining a "reduce" (equivalent to a sell) rating and a $14 price target.

Another concern that Nomura expressed was the fact that management is already acknowledging that seasonality is affecting its business, a topic that came up multiple times on the call. For example, CFO Drew Vollero said, "Sequentially, first-quarter revenues were down 10% compared to Q4 2016. This anticipated decline was primarily driven by the expected seasonality from advertising, which comprises the bulk of our revenues." Chief Strategy Officer Imran Khan later added, "And so our business will continue to face seasonality that we see on the broader advertising market."

Smaller companies that are supposed to be in hypergrowth mode shouldn't be as susceptible to seasonal factors, so it's a bit troubling that Snap is already feeling the impacts.