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Why Snap Stock Dropped Nearly 9% This Morning -- Then Bounced Back

By Rich Smith - Updated Apr 16, 2019 at 2:50PM

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Jefferies sees a path to profit for Snap -- but doesn't seem convinced it will follow that path.

What happened

Shares of Snapchat owner Snap Inc. ( SNAP -0.11% ) plummeted nearly 9% in early Wednesday trading before finding its footing and climbing back to close the day down "only" 2%. This was still a disappointing result for investors who had previously been treated to a three-day, near-13% rally in the price of their shares.

You can thank Jefferies & Co. for spoiling the party.

Fingers snapping

Jefferies thinks "clarifying" Snapchat's "story" should be a snap -- so why are investors selling? Image source: Getty Images.

So what

In a note out this morning, Jefferies warned of "greater uncertainty around the global advertising picture in 2019 and 2020" -- a negative for Snapchat, which has already encountered difficulties growing its advertising business.

Despite its concerns, Jefferies recommended several safe harbors to invest in, in response to this trend. As for Snap, however, the best Jefferies could say about it was that it considered the stock a "hold" -- and cut its price target on the shares by $1, to $7 a share.

Now what

That move clearly spooked investors. And yet, for those who read beyond the headline, there was still some good news to be found. Jefferies sees "upside for Snap if they can follow some easy steps to clarify the story and clean up communication."

With Snap having now booked back-to-back quarters of sequential revenue growth, and being expected to grow revenue once again when Q4 results come out, we should soon be able to see the results if Jefferies is right -- and potentially, a resumption in Snap's share-price strength.

Check out the latest Snap earnings call transcript.

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