BTIG Maintains Neutral Snap Thesis Ahead Of Q2 Report, But 'Patience Is Wearing Thin'

Snap Inc. (NYSE: SNAP) is the sixth most popular social media platform in the U.S, according to Statista. BTIG lowered its estimates for the company ahead of its Tuesday afternoon second-quarter report. 

The Analyst

BTIG's Richard Greenfield maintained a Neutral rating on Snap.

The Thesis

Platforms like Facebook, Inc. (NASDAQ: FB), Twitter Inc (NYSE: TWTR) and Facebook-owned Instagram are content consumption-based, while Snapchat and WhatsApp are communication-based, Greenfield said in a Monday note. (See the analyst's track record here.) 

Snapchat has yet to prove it can encompass both channels, the analyst said. 

Greenfield named the following arguments for why Snapchat's success has diminished since it went public less than 18 months ago:

• Revenue growth is estimated at less than half of the analyst's 2018 forecast.
• Competition from Instagram Stories threatens Snap’s daily active users.
• Poor engineering on Android makes Snap less popular and underutilized.
• The app redesign causeda decline of monthly active users in February and March due to pushback on new features.
• Time spent in the app seems to be shifting more toward messaging and away from content. 

Greenfield addressed why BTIG is not downgrading Snap to Sell despite its negative read on the equity. 

“While we are tempted, sentiment on the stock is horrible and small 'successes' could lead to an overreaction of the stock (as we saw in Q4)," the analyst said.

BTIG remains intrigued by the platform's "stickiness," Greenfield said. 

"While our patience is wearing thin and we hate being wrong, there is a massive shift of consumer time spent to mobile with few ways to participate outside of the dominance of Facebook and Google.”

Price Action

Snap shares were trading up 1.27 percent at $13.22 at the time of publication Tuesday.

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