Analyst: Snap Isn't A Camera Company Or A Social Media Platform, It's Just A Chat App

Snap Inc (NYSE: SNAP) took another hit on Friday after yet another Wall Street analyst came out bearish on the stock.

The Analyst

Raymond James analyst Aaron Kessler downgraded Snap from Market Perform to Underperform.

The Thesis

According to Kessler, there are five major problems with Snap stock:

1. Kessler said Snapchat is more of a chat and messaging app than a news feed or camera company, which makes it more difficult to monetize.
2. Snap’s Discover platform, which is its best opportunity for monetizing its user base, has struggled to gain market share.
3. Snap has a commanding lead in the younger demographic of users, but attracting older users will continue to be a challenge. 
4. Snap is still in the experimental phase of its platform, which is unappealing to advertisers.
5. At about 15 times Raymond James’ projected enterprise value/revenue estimate, Kessler said the stock doesn't have an attractive valuation.

“If Snap cannot diversify away more from its core chat service, then we believe the stock’s valuation will contract,” Kessler said in the note.

The latest data from the Daily Beast indicates only about 20 percent of Snapchat users are regularly using Discover, which Kessler said is a missed opportunity.

To make matters worse, Snapchat may have an expiration date among its user base if it doesn’t figure out a viable long-term strategy. According to Raymond James recent Millennial survey, more than half (54 percent) of Snapchat users expect to use the service less as they get older.

Price Action

Snap stock traded down by 4 percent Friday morning and remains well below its $17 IPO price.

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