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Can Snap Stock Bounce Back After Last Week's 14% Drop?

By Rick Munarriz - Feb 26, 2018 at 10:04AM

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Snapchat's parent company stumbles following an analyst downgrade and a Kylie Jenner diss.

It's been a month of highs and lows for Snap Inc. (SNAP -5.77%) investors. Snapchat's parent company saw its stock soar earlier this month after finally coming through with a blowout quarter, only to give back a good chunk of its earlier gains last week. 

Snap stock took a 14% hit last week following an analyst downgrade and unflattering words from a reality TV star with a huge following on social media. Citi analyst Mark May cut his rating on the stock from sell to neutral, concerned about the recent spike in negative app reviews for Snapchat after a redesign of the platform. He also lowered his price target on the shares from $18 to $14, but the real dagger came when Kylie Jenner dissed Snapchat on Twitter.

Screenshots of Snap's Custom Filters demo.

Image source: Snap, Inc.  

Snuffing out a short-lived rally

Tweets can rock stocks under certain circumstances, and that's just what Snap experienced last week. There's no shortage of tweets taking an online platform to task, but when you're a Keeping Up With the Kardashians star with 24.6 million followers on Twitter, even subtle jab is going to turn heads.  

Jenner's post on Wednesday night was the primary catalyst for the stock's 6% slide on Thursday. She would later go on to say that she still loves Snapchat -- her "first love" -- but the damage was already done. If the influential 20-year-old isn't hot for the platform anymore, how many of her fans will follow suit?

Snap stock was already having a rough week, sliding 7% on Tuesday following May's downgrade. A key component of May's analyst note is that Snapchat's core audience is not happy with the redesign that was rolled out during the fourth quarter. The update was done to attract older and more mainstream audiences to Snapchat, but the changes have sparked negative reviews and an online petition from the teens and young adults that make up the lion's share of the user base. 

May also feels that the stock is richly valued at 20 times forward revenue, especially since Snapchat's transition to self-serve ad tools could pressure pricing in the near term. Last week's one-two punch of May's downgrade and Jenner's comment was enough to give the stock a double-digit percentage hit, an unfortunate development after Snap had finally nailed the art of earnings season earlier in the month. 

The stock roared back to life after the company posted its fourth-quarter results two weeks earlier. The shares soared 37% for the week, a welcome break from the double-digit slides it delivered in its three previous quarterly earnings report outings. Revenue growth accelerated for the first time as a public company, up 72% for the period. The 8.9 million increase in daily active users was its best quarter uptick as well since going public last year. Snap also posted a narrower adjusted loss than Wall Street was expecting. A wave of analyst upgrades followed. 

Last week's hits aren't fatal. We've seen larger social media platforms roll out updates that were poorly received by existing users, only to pay off in the future. One celebrity moving on from a social app isn't a death sentence. However, all of this puts more weight on Snap's current quarter. It had momentum as one of this year's hottest stocks before last week's stumble, and now it's going to have a lot to prove when it steps up with fresh financials in two months. 

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Stocks Mentioned

Snap Inc. Stock Quote
Snap Inc.
SNAP
$13.72 (-5.77%) $0.84
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$38.70 (-1.25%) $0.49

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