Snap Inc (SNAP) plunges 5% after Morgan Stanley lowers price target

Snap Inc (NYSE:SNAP)’s post-IPO plunge has been incredible to watch. After one great week on the New York Stock Exchange, where everyone thought it was going to be the next Facebook, Snapchat has continued bleeding red ink and is still under its IPO price point.

At the start of Tuesday’s trading session, Snapchat shares plummeted another five percent to $16.10 per share. This is in part thanks to a recent Morgan Stanley report that slashes the social network’s price point from $28 to $16.

MS analyst Brian Nowak listed several concerns that he has regarding Snapchat’s future, including advertisers unable to develop proper SNAP ad units and lower third-party daily active user rates.

Here are Nowak’s four primary challenges for Snapchat:

4 Larger than Expected Challenges. First, our latest industry conversations indicate many advertisers are struggling to develop SNAP ad units with sufficient completion rates and consistent return on investment. Lower ROI holds back incremental ad dollars (see Exhibit 5). Second, we believe that SNAP’s ad ROI measurability has not improved as much as we had hoped or as much as expected by agencies this year…and that it remains lower than at other platforms (like Facebook and Instagram). This also holds back advertisers’ willingness to increase ad budgets. Third, SNAP’s self-serve automated bidding platform (which is intended to move beyond direct ad sales) is not scaling as quickly as we expected, as we initially thought the product would be fully launched in early 2017. We now do not expect it to scale until 4Q:17 or early 2018. Fourth, we believe Instagram is likely to be more disruptive than previously expected as our industry conversations indicate that Instagram is giving advertisers sponsored lenses for free. This is troubling for SNAP’s forward ad growth given Instagram’s scale (450mn+ estimated daily active users, compared to SNAP’s 166mn), SNAP’s current $15+ CPMs on lenses, and the fact that we estimate sponsored lenses and similar products make up approximately 50% of SNAP’s ad revenue.

This shouldn’t really come as a surprise to anyone, considering that Snapchat has yet to generate a single cent of profit and its executive leadership don’t expect it wil for at least another five years…if ever.

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