Snap Slides After Citi Says Sell On Redesign Concerns

Shares of Snap (SNAP) are sliding after Citi analyst Mark May downgraded the stock to Sell from Neutral, citing negative pushback against Snapchat’s redesign that could result in a decline in users and user engagement, and may negatively impact financial results.

SELL SNAP: In a research note to investors, Citi’s May downgraded Snap to Sell from Neutral and lowered his price target on the shares to $14 from $18. The analyst argued that while the recent redesign of its flagship app could produce positive long-term benefits, the significant jump in negative app reviews since the redesign was pushed out a few weeks, which could result in a decline in users and user engagement, and could negatively impact financial results. Additionally, he noted that the near-term transition of its creative ad tools to self-service may pressure pricing and create additional revenue headwind, and possible estimate risk. Despite 10% revenue upside in the fourth quarter and 72% year over year revenue growth, Snap’s adjusted EBITDA loss and negative free cash flow both worsened year over year, he pointed out, adding that its current valuation of 20 times forward revenue is highest among his coverage universe.

WHAT’S NOTABLE: Over the weekend, Recode reported that Snap CEO Evan Spiegel sold about 2.7M shares of stock, worth over $50M. The sale was a small amount of the executive’s overall holdings at a little more than 1%, the report noted, adding that it is not uncommon for public company executives to sell stock. Spiegel’s sale was his first since the company went public.

PRICE ACTION: In morning trading, shares of Snap have dropped more than 4% to $19.55.