Snapchat parent Snap Inc. faces intense competition from a number of players, and that’s reason to avoid its stock, according to an analyst.
Andrew Boone of JMP Securities downgraded Snap’s shares
SNAP,
to market perform from market outperform Tuesday, warning of competitive pressures from Alphabet Inc.’s
GOOG,
GOOGL,
YouTube Shorts and Meta Platforms Inc.’s
META,
Reels format.
“Short-form video platforms are taking share of time from Snapchat,” Boone wrote in his note to clients. He’s concerned about third-party data indicating that time spent on Snapchat in the U.S. fell 7% from a year before during the fourth quarter, while global time spent rose 7% but decelerated relative to the 13.5% growth rate seen in the third quarter.
As users engage more with videos elsewhere, they have less time to spend on Snapchat’s Discover and Stories interfaces, bringing advertising implications.
“Importantly, these are Snap’s most monetizable surfaces as we expect impression growth to be pressured looking ahead,” Boone wrote of Discover and Stories.
The downgrade comes as Snap’s stock has lost about three quarters of its value over the past 12 months, as the S&P 500
SPX,
has fallen 14% in the same span.
“While we acknowledge we are late with this downgrade, it reflects our preference for Meta (valuation) and Google (search has higher revenue visibility) over Snap while both have more mature short-form video products, which we expect to attract more user time over the next few years,” Boone wrote.
He noted that macroeconomic conditions are an “additional downside risk,” while a potential ban on TikTok in the U.S. could help Snap improve its share of time spent online, even if Facebook-parent Meta and Google-parent Alphabet stand to benefit more.
Snap’s stock was down 0.7% in Tuesday morning action.