Earnings season continues to be a challenging time for Snap, Inc. (NYSE:SNAP) shareholders. Shares of Snapchat's parent company plummeted 17.6% last week, fumbling after another disappointing quarterly report.
Revenue rose by a weaker than expected 62%. Wall Street pros were banking on an 87% gain. It was another unprofitable report for Snap -- and that's not much of a surprise -- but Snapchat's daily active users also clocked in with a weaker uptick than analysts were modeling. Morgan Stanley would go on to downgrade the busted IPO shortly after its problematic quarter.
Peace of Snap
Brian Nowak at Morgan Stanley is feeling less upbeat about Snap's prospects, downgrading the stock from equal weight to underweight. He feels that a turnaround in the near term is less likely given the slowing revenue and the mere 4 million sequential increase in daily active users. Nowak believes that this is the weakest daily active user growth in Snapchat's history. Monetization and engagement challenges are squeezing Snap from both ends. Nowak is slashing his price target from $14 to $11, a big deal since Morgan Stanley was a lead underwriter in taking the company public at $17 earlier this year.
Morgan Stanley's initial downgrade came in July, as the firm went from bullish to neutral. Now it is going from neutral to bearish.
Snap's best shot at turning things around now turns to the Snapchat app redesign that it plans to unveil on Dec. 4, but Morgan Stanley's Nowak isn't convinced. He feels that the redesign only creates more engagement and execution risks.
This is the third time in a row that shares of Snap have experienced a double-digit dip the week it reports earnings, making it a tricky stock to own during earnings season.
Snap's rough rookie year as a publicly traded company continues. The app redesign may be the necessary move to accelerate growth in the future, but it's likely to have translated into more negatives than positives in the current quarter as existing users and advertisers deal with the flux. With Snap stock sliding at least 14% in each of its first three earnings weeks as a public company, the odds are long for it to bounce back next time out.