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.
“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.