What happened

Shares of Snap (NYSE:SNAP) fell today, down by 5% as of 12:40 p.m. EST, after the stock was downgraded. Cowen analyst John Blackledge dropped his rating on Snap from market perform to underperform.

So what

The rating change came following a survey of ad buyers that didn't inspire a lot of confidence in Snap's ad business. An overwhelming 96% of advertisers prefer to spend their ad budgets on Facebook's (NASDAQ:FB) Instagram platform instead of Snapchat, which Blackledge views as a "major challenge for Snapchat as the growing Instagram Stories platform has quickly become the first choice for advertisers."

Snapchat logo

Image source: Snap.

The results are particularly troubling considering the analyst is quite bullish on the overall digital ad market, as advertisers continue shifting their spending toward digital platforms.

Now what

Blackledge is reducing his estimates for Snap's 2018 revenue, and now expects total revenue to be approximately $1.1 billion, down from a prior estimate of $1.3 billion. The analyst also trimmed his estimates for user growth due in part to the recent major app redesign, as well as the long-standing performance issues with the Android version of Snapchat. Meanwhile, Snap shares still fetch lofty valuation multiples, which could get compressed if other Street analysts ratchet down their respective estimates.

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