Why This Morgan Stanley Analyst Has Double Downgraded Snap

Why This Morgan Stanley Analyst Has Double Downgraded Snap

There are concerns around Snap Inc’s SNAP revenue and profit outlook, given its disappointing second-quarter results, third-quarter trends so far and certain company-specific challenges, according to Morgan Stanley.

The Snap Analyst: Brian Nowak downgraded the rating for Snap from Overweight to Underweight, while reducing the price target from $17 to $8.

The Snap Thesis: The company has been generating flat year-on-year revenue so far in the current quarter, versus the previously expected growth of around 16%, Nowak said in the downgrade note.

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Snap’s ad business is not as developed as previously thought and “growing this type of business through a weakening macro environment is likely to be even more challenging,” the analyst mentioned.

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“The lower than expected sophistication and 'quality' of SNAP's ad business also raises the risk of TikTok ad dollar share loss,” Nowak wrote. “More tactically, we also assume a decline ahead in 2H:22as we now model 3Q/4Q ad revenue to decline by ~2%/10% Y/Y,” he added.

SNAP Price Action: Shares of Snap had declined by 0.75% to $9.88 at the time of publication Monday.

Posted In: Brian NowakMorgan StanleyAnalyst ColorDowngradesPrice TargetAnalyst Ratings