JMP Securities downgraded shares of Snap, citing sluggish customer growth and potential risks from its app redesign.
The social media company reported worse-than-expected results last Tuesday. Both sales and daily dynamic users – a key metric for Snap – fell short of consensus objectives.
“We downgrade shares of Snap Inc. to advertise perform from industry outperform as we consider the pending app redesign could further influence daily active users progress,” wrote JMP Securities analyst Ronald Josey in a note to consumers. “With slowing daily dynamic user growth in accordance with our projections, its pending merchandise redesign-which should produce the product better to use-and uncertainty around advertiser demand and prices, we step to the sidelines until Snap’s daily dynamic user progress stabilizes and advertiser demand ramps.”
As a key indicator of app user activity, the amount of daily dynamic users is carefully watched by advertisers when coming up with decision on whether – or just how much – to spend on Snap. The business added 4.5 million new users in the 3rd quarter, nearly 60 percent below JMP projections and disappointing numerous others across the Street.
Shares of Snap experience fallen a lot more than 16 percent since the discouraging earnings survey last week and amid a slew of critical analystnotes. The shares were down another 1.4 percent in premarket trading Wednesday following a JMP call.
CEO Evan Spiegel said through the recent earnings phone that the upcoming app update will include major social media feed that targets friends and trending video clips. The business is tweaking its app largely to entice innovative users who presently find it difficult to use, including more mature people who find the current interface and multiple menus puzzling.
“Snap strategies to redesign its main app with a focus on making it better to use, surface even more of its Discover content material, and importantly, appeal to a broader audience,” continued Josey, noting that users aged 35 years or even more accounted for 15 percent of daily users the fourth one fourth this past year. “We consent these changes will be the right move to make, but believe they will probably further impact traffic progress, at least in the near-to-medium term.”
This all comes as Snap transitions to an auction-based advertising system, whereby the business awards ad slots to the best bidder from interested businesses. Though the popular photo sharing app saw the amount of advertisers spending in the auction multiply by a factor of five since July, the main element will be in scaling the auction to create more powerful demand.