Snap does not look attractive to analysts despite recent stock run-up – MarketWatch

Shares of Snap Inc. were down 1.4% Thursday, as analysts took a downbeat tone on the stock, encouraging investors not to buy shares.

Even though Snap SNAP, -3.42% shares have been on an uptick recently, James Cakmak, an analyst at Monness, Crespi, Hardt who recently downgraded Snap to neutral from a rare buy rating, said there havent been any improvements to the companys fundamentals. To that end, Wedbush analysts initiated the stock at neutral Thursday, citing a slew of issues facing the company including decelerating growth, competition and its lack of profitability.

Shares of Snap have gained 7.6% in the past month, while the S&P 500 SPX, +0.18% has remained relatively flat. This is a marked change from Snaps past trajectory, with shares falling 30% in the past three months, while the S&P 500 has gained 2.4%.

In a note entitled Dont jump on the bandwagon because of the recently rally and some favorable PR, Cakmak attributes the stock run-up to favorable press, related to Snaps launch of its first daily news show through NBC and bullish stances on Snaps new mapping feature, as well as declining short interest. He sees short interest in the stock down to 14% from around 30% before the beginning of the quarter.

Read also: Analyst initiates three social media stocks and guess which one is a sell

Even with its content pushes, Cakmak does not think Snap is doing enough to combat Facebooks own video attempts, given its launch of video platform Facebook Watch, which is also partnering with major media platforms. Instead, he sees Snap as more concentrated on the camera, rather than content to fill the platform.

We dont believe the priorities are aligned with building out the content platform at the pace needed to combat Facebook (FB/Neutral), and in turn, generate upside in monetization, Cakmak wrote.

Facebook Inc. FB, +0.01% remains a large threat for Snap, not just in terms of content but in terms of its user base. Snap last reported 173 million daily active users, below Facebooks 1.32 billion and notably below that of the 250 million for Facebooks Instagram Stories.

The threat appears poised to grow larger, as Wedbush analysts noted that Snaps user growth is slowing, as daily active user net additions peaked in the second quarter of 2016 at 21 million, but dropped to 7 million in the most recent quarter.

Even as Snap has been growing its revenue reaching $181.7 million in the first quarter, up from $149.6 million in the previous quarter that growth has not been enough to offset its large losses, say Wedbush analysts. Snap had a non-GAAP net loss of $854 million for the six-quarter period ended in the second quarter of 2017.

They initiated the stock with a neutral rating and $12 price target.

Cakmak had been a rare analyst with a buy rating on Snap, but downgraded the stock to neutral from buy on August 11, saying that Snap had a unique advantage with its growth in average revenue per user and appeared to have a pulse on mobile content. However, the downgrade was also based on what he sees is the wrong focus of the platform as well as the companys self-service ad platform, which could help out later on but is still in its early stages.

The average FactSet rating on Snap is hold, with a price target of $15.05.

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Snap does not look attractive to analysts despite recent stock run-up - MarketWatch