Snap Inc. (NYSE: SNAP), a company that has been around since 1997, beat Street estimates for its fiscal fourth-quarter earnings. However, despite the company’s impressive quarterly results, a Wells Fargo Analyst did not remain optimistic about it.
Ken Gawrelski has downgraded Snap this morning, and lowered his target price to $11, which no longer indicates a meaningful upward movement from current levels.
In a research note, he said that he was “downgrading SNAP” because the redesign of the app is taking longer than expected and ad revenue remains stubbornly lower than industry standards.
Snap shares are down nearly 40% compared to their 52-week peak at the time of writing.
Snap stock downgraded due to planned reinvestments
Wells Fargo cut its rating for Snap stock today, also because the social media firm is preparing to make aggressive reinvestments.
The investment firm said in its report that “solid revenue trends are not sufficient to offset the period of reinvestment”, leading to significant cuts in their EBITDA projections.
Snap Inc’s investment plans led it to forecast a first quarter adjusted profit of $40 million to $75 millions. Analysts, on the other hand, were at a higher $78.5million instead.
And Snap shares don’t pay a current dividend to remain appealing for income investors amid muted expectations for future earning.
Snap’s app redesign is slow to roll out
Snap Inc. forecast a 15% annualised rise in its adjusted operating expenses this year, compared to the 6.0% they had predicted before.
The company attributed its increased full-year expenses primarily to headcount investment, followed by legal and regulatory costs.
Ken Gawrelski says that Snap has also been slow to redesign its app, and as a result, it is unlikely to see the engagement growth expected in FY25.
He revealed that “Simple Snapchat”, which is now being tested in almost all markets, has reached 25M+ users. (Only 5.0% Snap’s MAUs), he said, adding that the redesign had helped with content consumption but not engagement so far.
Snap shares: The silver lining
Wells Fargo cited slower ad growth when it lowered its revenue growth estimate for FY26 to 13.2%.
Despite its dovish outlook, the investment firm still sees things changing for Snap stock in the event that TikTok, Snap’s rival app is eventually banned in the United States.
Analyst Ken Gawrelski wrote: “Estimate an 18% increase in our Snap FY26 revenue estimates should TikTok become banned in the US.” The company’s estimated FY26 EBITDA estimates could increase by 15% if the company manages to win only 5.0% of TikTok’s US advertising budget.
Snap’s global daily active users (DAUs), which numbered 453 million, were well above the 451,1 million experts had predicted. Its global average revenue per user was $3.44. This was in line with expectations.
This post Snap Stock downgraded despite strong earnings report for Q4 may be modified as new developments unfold.
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