Snap shares fall after analysts cut price targets, citing Instagram competition

Brendan McDermid | Reuters

A banner for Snap Inc. hangs on the facade of the the New York Stock Exchange on the eve of the company’s IPO in New York.

Snap’s user engagement will decline as the messaging app’s customers move to other platforms, according to Evercore ISI.

The firm lowered its price target to $7 from $9 for Snap shares, citing the competitive threat from Facebook’s Instagram. The company’s stock closed at $8.23 Wednesday.

“We believe that competition (particularly from Instagram) is irreversibly reducing SNAP’s opportunity to deliver on long-term investor expectations,” analyst Anthony DiClemente said in a note to clients Thursday. “Given the lack of positive catalysts in the face of declining users and decelerating revenue growth, not to mention management turnover ahead of the seasonally critical 4Q, we lower our Target Price.”

Snap shares were down 4 percent in Thursday’s premarket session.

DiClemente also reiterated his underperform rating for Snap shares.

In a similar fashion, Citi Research lowered its price target Wednesday to $7 from $8 for Snap shares, citing rising pressures from its competitors’ products. The firm reiterated its sell rating for the company.

“We are lowering our forecasts again to reflect recent trends in user and [average revenue per user] growth,” analyst Mark May said in a note to clients.

May said Snap may be forced to further cut its operating expenses and raise capital in 2019 or 2020 if business trends do not improve.

Snap did not immediately respond to a request for comment.

The company’s shares have significantly underperformed the market this year. The stock declined 44 percent year to date through Wednesday versus the S&P 500’s 9 percent return.

Disclosure:
CNBC parent NBCUniversal is an investor in Snap.

— CNBC’s
Michael Bloom
contributed to this story.