Call of the week: Snap hit with five downgrades

Yahoo Finance

Yahoo Finance’s call of the week is a series of downgrades on Snap (SNAP), the parent company of Snapchat. UBS, JPMorgan, RBC Capital Markets, Stifel and Morgan Stanley all lowered their ratings on the social media company following its disappointing third-quarter results.

The bearish calls sent shares tumbling. The stock is down 16.4% since reporting its weak third-quarter results, and down 133% from its high of $29.44, hit on March 3, its second day as a public company.

One downgrade in particular, Morgan Stanley’s, is interesting because the firm was the lead underwriter of Snap’s IPO.  In a note to clients, analyst Brian Nowak discussed “monetization and engagement challenges” facing Snap and cut the price target on the stock to $11.

Morgan Stanley’s bearish this week marks the second time the firm has lowered its rating on Snap since it went public in March.  The firm first turned cautious on the stock in July, just five months after its IPO and a day after it traded below its $17 IPO price for the first time, noting the company was not “evolving/improving as quickly as we expected” and was facing tough competition from Instagram, which has been successful copying Snapchat’s stories feature.

Of the five firms that cut their ratings on Snap this week, UBS expects the biggest decline in share price. The company lowered its price target to $7 a share from $12, which is about 55% lower from Snap’s closing price on Friday.

Overall, analysts aren’t confident in Snap’s future. According to Bloomberg, the stock has a total of seven Buys, 19 Holds and eight Sell ratings and an average price target of $13.

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