JPMorgan Downgrades Snap Amid Continued User Decline

Snap Inc (NYSE: SNAP) reported Thursday its third-quarter results, which came in better than expected but multiple concerns beyond the headline numbers prompted JPMorgan to turn bearish.

The Analyst

JPMorgan's Doug Anmuth downgraded Snap from Neutral to Underweight with a price target lowered from $12 to $6.

The Thesis

Snap's third-quarter report showed a revenue beat driven by an acceleration in average revenue per user (ARPU) growth from 12 percent in the second quarter to 20 percent in the third quarter, Anmuth said in the note.

The ARPU growth was attributed to traction in the global online sales business and higher adoption of programmatic, which represented 85 percent of total revenue. Looking forward, the transition to programmatic will be less of a concern but should come with a "more controlled" ARPU deceleration growth of 830 basis points in 2019 versus 3,100 points in 2018.

Meanwhile, Snap's report represents the second straight quarter of daily active user (DAU) declines. The company's guidance for the fourth quarter implies another quarter of bleeding users.

Snap also pointed to targeting the 35-plus age group in developed markets and 13-34 market in developing markets. Anmuth said it will likely be difficult for Snap to win new users at the expense of formidable competitors, including Facebook, Inc. (NASDAQ: FB)'s Instagram that boasts a much larger user base and advertiser pool.

Price Action

Shares of Snap were trading lower by more than 11 percent early Friday morning at $6.17, which is below the stock's all-time low of $6.46.

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