Snap Analyst Downgrades Stock, Says Earlier Thesis On Shares Posting Gains 'Compromised'

Snap stock lost over one-quarter of its market cap in Thursday’s after-hours trading following the disappointing quarterly results reported by the Snapchat parent.

The Snap Analyst: Patterson downgraded Snap shares from Overweight to Sector Weight.

The Snap Thesis: KeyBanc’s thesis on shares gaining is compromised due to several reasons, analyst Patterson said. The analyst noted that the dislocation versus agency results point to competitive losses as well as difficulty in winning ad budgets.

Competitive issues with incumbents such as TikTok and Apple, Inc. (NASDAQ: AAPL) and price volatility, given a narrower advertiser base, are taking a toll, he added.

Measurement and product initiatives will take time to drive improvements, the analyst said. Softness in the budgets of verticals such as retail, consumer-packaged goods, digital entertainment, and fintech, according to the analyst, will continue to persist.

Snap’s free cash flow inflection and GAAP profitability are deferred, he added.

“Given a ~20% revenue growth profile and persistent GAAP loses, we struggle to see SNAP's 2023E/2024E EV/S multiple expanding beyond 3.6x/3.0x,” KeyBanc said.

Snap Price Action: Snap shares plunged 26.79% to $11.97 in after-hours trading on Thursday.

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