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Snap Shares Cut to Sell at Citi as Revenue Hopes Are Seen Too High

Citi analyst Jason Bazinet cut Snap shares to sell, saying revenue expectations for Snapchat's parent are too high.
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Citigroup analyst Jason Bazinet downgraded his rating on Snap shares to sell from neutral, based on his view that analysts’ revenue expectations for the parent of the Snapchat social-media photography platform are too high.

“We downgrade SNAP from neutral to sell, as we believe investor expectations for 2020-21 revenues are too high,” he wrote in a report. “And, if we’re right, Snap is trading near the peak of its historical valuation.”

Snap’s price-to-book-value multiple stands at 11.91, up from 9.95 last year, according to Morningstar.

Snap shares have risen more than 30% since the Santa Monica, Calif., company reported first-quarter results on April 21, Bazinet noted. 

It beat analyst estimates for both user growth and revenue growth, with the former registering 5% from the fourth quarter of 2019, and the latter registering 44% from a year earlier.

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“While the market has embraced encouraging pre-covid-19 results - in January and February 2020 - we believe investors are now too bullish on both [daily average user] growth and monetization trends,” Bazinet said

To be sure, friend communications on the company’s Snapchat app soared by more than 30% in the last week of March compared with the last week of January, Snap reported.

Still, "while Snap initially benefited from stay-at-home orders with increased user engagement, third-party data suggests momentum in daily-average-user growth may not be sustainable," Bazinet said.

Snap shares have wavered in Wednesday trading. They recently traded at $17.63, up 0.7%.

The stock has gained 6% over the past three months, compared with a 14% slide for the S&P 500 index and a 7% dip for the Nasdaq Composite.