Snap slides after analyst says there's 'little room for upside' (SNAP)

Jonathan Garber

April 18, 2019 6:20 PM

Snap was downgraded from "outperform" to "neutral" by Wedbush analyst Michael Pachter.

Evan Spiegel

He says the company's current valuation leaves "little room for upside."
Shares were trading lower by 2.7% on Thursday morning.
Watch Snap trade live .

Snap was down 2.7% on Thursday morning after receiving a downgrade over valuation concerns.

"Notwithstanding fierce competition for user mindshare and advertiser dollars and a history of being hugely unprofitable, progress towards profitability, stabilizing user growth and improved execution led us to upgrade shares of SNAP in September," wrote Wedbush analyst Michael Pachter, who maintained his $12.25 price target about 8% above where shares settled on Wednesday.

"The company's current share price leaves little room for upside, and we are downgrading our rating to NEUTRAL from OUTPERFORM."

Shares of the social-media company, which closed at $11.30 apiece on Wednesday, have gained more than 145% since falling below $5 in December .The big run up swayed Rich Greenfield, the biggest bear Snap bear on Wall Street, to raise his price target last month from $5 to $15. He is now the second-most optimistic analyst on the name.

"Given that Snapchat's core use case is communications, management's wide array of missteps over the past two years has not led to a collapse of users or usage," Greenfield said. "Snapchat is 'how' this generation of users communicates making it difficult to leave even if users are frustrated."

Aside from its share-price struggles at the end of last year, Snap has dealt with an exodus of executives. More than 20 senior executives have left the company since it went public in March 2017.

And Snap's problems don't stop there. A report out this week from The Financial Times calculated the social-media network will run out of cash within three years if revenues don't pick up.

Snap is set to report its first-quarter results on April 23. Wall Street analysts surveyed by Bloomberg are expecting an adjusted loss of $0.12 a share on revenue of $307.3 million.