Snap stock price is slipping after Aaron Kessler of Raymond James downgraded the stock.
Snap is undergoing the biggest app redesign in the company's history in an attempt to better monetize its platform, but according to one analyst, it could have the exact opposite effect.
"Recent data points released this week indicate solid engagement on chats and Snaps, though engagement is much more limited for other activities," Aaron Kessler, an analyst at Raymond James said in a note to clients. "Historically, chat/messaging apps have been difficult to monetize."
Kessler downgraded Snap to an "underperform" on Friday, and the company's stock slipped 3.15% in early trading to $14.14 per share.
Snap's redesign attempts to more clearly separate content made by users' friends from content made by brands and celebrities. The app will start sorting its content algorithmically, which could allow for more opportunities for the company to sell sponsored content and advertisements in its feed.
The problem with the redesign is that even if there are more opportunities to place ads next to content from brands and celebrities, Kessler said that users are less likely to view the content now that it isn't in the same place as the content from friends.
Snap is putting content from brands and publishers in the app's "discover" section, and even before the redesign, only about 20% of users viewed content from that section, according to a story from the Daily Beast. That number is likely to fall after the redesign, Kessler said.
Kessler also said that even if the highly-monetizable section of the app still attracts users after the redesign, the people using Snap are often teenagers, which are a less attractive demographic for advertisers due to their lower incomes. In a recent survey of ad buyers from Cowen, a staggering 96% of those surveyed said they'd rather buy ads on Instagram.
Snap is currently trading for $14.30, which is 15.8% below its IPO price of $17.