The parent company of Snapchat has had a rough ride since going public last year: As of Tuesday morning, Snap was trading at $13.07, down about 50% since its IPO in March 2017.
With social media stocks under the microscope, bearish analysts are predicting that Snap could sink even lower. Since rolling out their earnings in July, Twitter (TWTR - Get Report) and Facebook (FB - Get Report) have deflated about 25% and 18%, respectively, owing largely to disappointing user metrics. Twitter said that it lost one million monthly active users (MAUs) in a recent purge of problem accounts, while Facebook reported slower-than-expected user growth after months of privacy scandals.
Similarly, many of Snap's issues revolve around user metrics and ad dollars. In a Monday note, Pivotal's Brian Wieser pointed out a decline in usage per user on Snap, based on Nielsen data: "To the extent this is reflective of reality, this is clearly a negative trend," he wrote. "If it continued as audience growth decelerates, this would eventually have a negative impact on the company's capacity to generate ad revenue." Pivotal maintains a 12-month price target of $9 for Snap.
Meanwhile, RBC's Mark Mahaney thinks Snapchat could see no growth in daily average users (DAU) at all in the June quarter, which it reports on Tuesday after the bell. FactSet's consensus calls for growth of one million DAUs in the quarter.
In its earnings report for the March quarter, Snap missed expectations for new user growth, and CEO Evan Spiegel warned that a widely-disliked app redesign could decelerate growth even further. Together, the news caused Snap shares to drop more than 20% the day after the report was announced.
"Our redesign created some headwinds in our revenue this quarter by disrupting user behavior and creating some apprehension among our advertising partners," Spiegel said on Snap's May earnings call.
That sparked concerns about Snap's ability to compete with bigger rivals, namely Facebook's Instagram, for ad dollars. and shRecent reports have suggested that advertisers remain skeptical of Snap's platform, despite recent efforts by Snap to make it easier to use.
"It's not that there is anything particularly wrong with Snap; rather, Instagram is Facebook, and advertisers understand Facebook," added Wedbush's Michael Pachter. "Instagram has one billion users (half as big as Facebook and 5x Snap), and advertisers are comfortable that they will get an ROI for their ad spend." Projecting deceleration in daily active users (DAUs), Wedbush set a 12-month price target for Snap of $10 per share.
Others are a bit more upbeat about Snap's potential. In a recent note, RBC's Mark Mahaney suggested that Snap has taken necessary steps to evolve its offerings, including a maps feature and promoted stories, as well as exploring new avenues like gaming: "We also continue to see very good signs of Product Innovation -- maybe the only real sustainable growth driver in 'Net Land," Mahaney wrote.