Getty Images
Snapchat’s redesign clearly needs a redesign, but backlash over the current version has investors spooked.
Just months after defending the separation of friend and publisher content on the revamped Snapchat app, Snap Inc. Chief Executive Evan Spiegel admitted that serious user backlash has the company rethinking its strategy. Snap’s revenue for the first quarter came in below Wall Street’s expectations, and its daily-active-user count also disappointed.
Snap shares are down more than 18% in Wednesday trading after Spiegel said that Snap would tweak its redesign amid “some disruption” in the Snapchat community. The stock is now trading at a new all-time low. The prior intraday low was $11.77 on Aug. 11, 2017, and the stock closed at $11.83 that day.
At least 15 analysts lowered their price target on the stock, according to FactSet. Two others downgraded shares. The average price target is now $13.41, whereas Snap’s stock is now below $12 in premarket trading.
Don’t miss: Apple earnings were saved by the company’s new MVP
Oppenheimer’s Jason Helfstein downgraded the stock to perform from outperform, citing the effect of the redesign on marketers. The “most recent app redesign seems to have been “last straw” for some advertisers, who are now unlikely to give platform another chance absent significant DAU reacceleration (no catalyst in sight),” he wrote.
Others keyed in on the impact of the redesign on user engagement. “Snap’s first-quarter results and second-quarter commentary confirm the deleterious impact from changing the product on the fly—especially among the under-penetrated Android user base,” wrote MoffettNathanson analyst Michael Nathanson, who has a sell rating and $7 price target on the stock. He predicts that Snap’s stock will continue to underperform and wrote that the company is growing revenue at about the same rate as Facebook is even though its revenue is 2% the size of Facebook’s.
GBH Insights analyst Daniel Ives wrote Tuesday that while the redesigned app might make sense in theory, Snap’s users need to be “hand held” through the transition. “Otherwise it could backfire and alienate ‘power users’ of the platform, thus remaining a clear risk on the story,” wrote Ives, who has a “highly attractive” rating on the stock but lowered his price target to $14 from $24. Snap shares have been slammed in the past after celebrities like Kylie Jenner panned the redesign.
BTIG analyst Richard Greenfield wrote that Snap has managed to somewhat fend off competition from Facebook Inc.’s Instagram due to the popularity of its chat tool, which users complained was now littered with “stories” from friends. He estimates that domestic daily active users fell from 82 million at the end of 2017 to 79 million in March, though the company declined to give a specific answer on this topic when Greenfield asked them about it on the conference call. Snap rolled out its redesign more broadly during the middle of the quarter.
Uproar over the new look to the app weighed on Snap’s financials. “Total revenues decelerated to 54.1% year-over-year growth to $230.7 million, missing Street expectations of $244.3 million,” SunTrust Robinson Humphrey analyst Youssef Squali wrote. “This was primarily due to negative user and advertiser reaction to the app redesign, continued pricing pressure, and softness in Creative Tools.” He rates the stock at hold and reduced his target to $13 from $15.
Evercore ISI analyst Anthony DiClemente downgraded Snap shares to underperform from in-line, arguing that revenue trends aren’t moving in the right direction.
“Management commentary calls for a further “substantial” deceleration in revenue next quarter, as Snap won’t enjoy the benefits of Olympics-related revenue, which may have contributed as much as 10% of the first quarter’s total,” DiClemente wrote.
He called cash burn a “growing concern” and said that Snap’s current cash burn rate is “not sustainable long-term.”
Snap recently shifted its ad platform to a self-serve, programmatic model. That sort of transition tends to lower prices significantly but increase impressions. Spiegel said that Snap ad impressions rose 450% year over year during the March quarter. “Monetization trends reflect broader business challenges.”
“We believe the overall move to an auction-based pricing model sets the foundation for longer-term success, but we expect continued volatility as Snap transitions,” wrote William Blair analyst Ralph Schackart, who has an outperform rating on the stock. “We are encouraged by the company’s progress with its new product initiatives, including optimization of the redesigned app, Story Ads, the expanded Snap Pixel, Lens Studio, and improving Android performance,” he wrote.
Snap shares are down 49% over the past 12 months. The S&P 500 is up 11% over that period.