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Four reasons Snap’s stock price is at an all-time low

It’s not just about the redesign.

Snapchat co-founders Bobby Murphy and Evan Spiegel ring the opening bell on the NYSE in front of a sign reading “Snap Inc.”
Snap founders celebrate its first day on the stock market last year
Drew Angerer / Getty

Snap’s stock price hit an all-time low as a public company this week, closing last Friday under $10 per share — more than 60 percent below the company’s first day of trading 18 months ago.

There is never just one reason for a company’s poor stock performance, and in Snap’s case, there are many. Here are some of those:

Snap’s business growth is much slower than expected

Eighteen months ago, analysts projected, on average, that Snap would generate around $540 million in revenue this quarter. Now they’re predicting just $283 million in sales, a dramatic decrease.

Why? Snap admits that it’s been slow to bring lots of advertisers onto the platform. That’s a problem, because Snap sells almost all of its ads through an auction process, where ad impressions are sold to the highest bidder. Snap needs more advertisers to increase competition for those auctions: More advertisers means more bidders, which means higher ad prices and more revenue for Snap.

Competition is increasing

There’s no doubt that Instagram, which has successfully copied many of Snap’s best features, is hurting Snap’s growth. In just two years, Instagram’s Snapchat Stories clone has managed to attract more than twice as many users as Snapchat has as a whole.

The impact of competitors may be most evident by looking at the amount of time people spend using Snapchat. A survey published this week by analysts at Cowen Research found that Snapchat users spent less time with the app this quarter than they did a year ago. Users still spend roughly 31 minutes inside the app per day — pretty good — down slightly from 33 minutes in the third quarter of 2017. But Instagram, Twitter and Pinterest all saw time spent increase this quarter over the same time last year.

Snap is losing users

That fierce competition, coupled with other issues, like displeasure around the app’s big redesign earlier this year, led to Snap losing daily active users — three million of them — for the first time ever last quarter. That’s a tough issue to overcome just a few years into life as a public company. As we’ve learned from Twitter, jumpstarting user growth once the momentum stops is incredibly hard.

Snap is losing executives

Snap’s executive team has been anything but stable since the company’s IPO in March 2017. Since going public, Snap has lost its CFO, VP of product, VP of sales, VP of engineering and its general counsel.

This past Monday, Imran Khan — the company’s No. 2 exec behind CEO Evan Spiegel — announced he was also leaving.

“We see the exit of both CFO Drew Vallero and CSO Imran Khan as troubling given how early on it is in the business transition,” analysts from investment bank Jefferies wrote this week.

Spiegel controls Snap and is viewed by many as a product savant, so a lot of investors have kept hope that his product expertise would keep Snapchat going amid other turmoil.

But BTIG’s Rich Greenfield, who downgraded the company to “sell” this week, is no longer buying that argument. “We have said since the IPO that a bet on SNAP was also a bet on Evan Spiegel’s product innovation ability,” he wrote. “We have been disappointed in SNAP’s product evolution (as have users) and see no reason to believe this will change.”

How about some good news?

Not everyone is down on Snap. There was one analyst last week who bumped Snap up to a “buy” rating.

Wedbush’s Michael Pachter thinks that Khan’s departure is actually a sign of good things to come for the company. Specifically, he thinks it will mean more responsibility falls to Snap’s new CFO, Tim Stone, who joined the company from Amazon this summer. Pachter thinks Stone is legit.

“Most investors were not impressed with Imran Khan,” Pachter wrote in an email to Recode. “I think his departure will end up being a net positive, hence the upgrade.”

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