Shares of Snap (SNAP - Free Report) fell to a new all-time low on Tuesday after the struggling social media company was downgraded once again.
Snap sunk over 2% to dip below $14 a share for the first time ever on Tuesday morning. The company’s stock dropped to an intraday low of $13.65 per share in morning trading, but it has since bounced back to hover around 1% lower than Monday’s close.
Cleveland Research downgraded Snap from a "buy" to "neutral" Tuesday, which could be part of the reason the social media company’s stock price fell again. Snap is a Zacks Rank #4 (Sell) and scored an “F” grade for Value and a “D” for Growth in our Style Scores system.
On top of the downgrade, the price point to bet against Snap is set to fall drastically on July 29. Up to this point, Snap’s short sellers have had to pay massive borrowing fees, but those costs are set to shrink when insider shareholders are allowed to sell the stock for the first time.
However, in a note to clients on Monday, Drexel Hamilton analyst Brian White fought back against those worried about the upcoming expiration. White reaffirmed his “Buy” rating and $30 price target for Snap. The analyst went on to say that Snapchat continues to innovate.
Still, the company’s core business seems to be in almost immediate danger from its biggest competitors, and the average investor is likely to be turned off by the risk.
Growth is King
It might be hard, at this point, for anyone who doesn’t have a stake in the company’s future to honestly see how the company recovers from its plummet since going public. Almost everything that once made Snapchat so fun and engaging for its core of young users has been copied by a behemoth it seems unprepared to fight back against.
Indeed, Facebook's (FB - Free Report) Instagram, WhatsApp, and Messenger platforms, as well as its traditional app, have all successfully plagiarized some of Snapchat’s most innovative features.
In late June, Instagram reported that its Stories feature, which is a blatant copy of Snapchat’s tool with the same name, added 50 million new users in two months. Instagram Stories now boasts 250 million daily active users—it jumped from 200 to 250 million DAUs faster than it climbed from 150 to 200 million.
When Snapchat last reported its user numbers in May, the company added only 8 million total users in the first-quarter, bringing it to a total of 166 million DAUs. Roughly 84 million more people use Instagram Stories every day than Snapchat, based on Snap’s first-quarter numbers. But that is not even the worst part.
Overall, Instagram, arguably its biggest competitor, now has 700 million monthly active users overall—adding 100 million in four months. Based on user numbers alone, without even looking at Facebook itself, it is clear that Snapchat cannot command as much advertising revenue as its biggest rival and tech-leach, and user growth reigns supreme in the tech and new media world.
Without substantial user growth, the company has little to offer its investors since its business model relies almost entirely on advertising. Evan Spiegel’s company could find itself in dire straights if Snap fails to add new users at a much higher rate in the second-quarter—Snap is set to report on August 10.
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