Following a pretty dismal earnings report last week, Snap Inc.’s ongoing financial struggles continue to spook investors, and over a dozen investment banks and brokerage firms have issued downgrades on its stock.
Bloomberg reported Monday that over a dozen brokerages and investment banks issued a downgrade recommendation on Snap stock. A downgrade, while technically just an advisory, is a key indicator to the rest of the market how well – or, in Snap’s current case, how poorly – analysts expect the stock to perform in coming months, and could trigger further sell-offs if the recommendation is to dump shares instead of hold.
The company’s struggle to turn its camera app into a profitable, value-generating machine is clear in its financial statements. As Seeking Alpha noted yesterday, Snap’s second quarter earnings showed operating costs increased nearly 30% year-over-year, while the company continues to operate at a loss.
Snap declined to comment.
Snapchat saw its daily active user count increase 18% annually to 347 million, but a growing audience doesn’t mean much if the social media giant can’t monetize it.
Snap’s net loss in the second quarter of this year totaled $422 million, on revenues of $1.1 billion. The net loss was a steep increase from the same time last year, when it posted losses of $152 million.
Equity researchers firm MoffettNathanson also branded Snap stock with a downgrade. In a letter Friday, the group said it “rarely ever” decides to issue a stock downgrade right after an awful quarterly report in a string of lackluster earnings statements, and claimed the last time it posted such a warning was “decades ago.”
“We have lost confidence in the company’s leadership team and their ability to forecast their business,” MoffettNathanson wrote. “Given the losing hand that Snap is now facing combined with the apparent lack of valuation support and the need to preserve free cash flow, absent a take-out, there really does not appear to us a compelling reason to buy this stock.”
(Disclosure: Snap is an investor in dot.LA)
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