Snap Tumbles as JPMorgan Turns Bearish on Slowing User Growth

(Bloomberg) -- Snap Inc. is likely to continue struggling to add users as Facebook’s Instagram remains a popular alternative its key demographics, according to JPMorgan, which downgraded the struggling social-media company to underweight from neutral and slashed its price target in half, to $6.

"Snap expects the next leg of user growth to come from 35+ age group in developed markets, and 13-34 age bracket in developing markets,” JPMorgan’s Doug Anmuth wrote in a note Friday. “However, we believe that Instagram is much more penetrated in these demographics, and it will be challenging for Snap to pull users away from Instagram.”

The stock fell 13 percent in early trading to about $6.10 at 7:03 a.m. in New York, which would be a record low in regular trading. The slide extends a sell-off that has cut its price in half thus far this year.

The company, which operates the social network Snapchat, late Thursday reported a second straight quarterly drop in its daily active users and warned it would likely see another decline in the current quarter. JPMorgan trimmed daily active user estimates for both 2018 and 2019 by 4 percent.

The commanding user and advertiser bases at both Facebook and Instagram "will continue to attract incremental ad dollars in the social media space, making it difficult for Snap to gain meaningful market share," JPMorgan wrote. It expects Instagram’s revenue to grow at twice the CAGR of Snap’s through 2020.

With JPMorgan’s downgrade, Snap has sell ratings from 13 analysts, while 15 say hold and eight recommending it as a buy, according to data compiled by Bloomberg. The average price target is $9.11.

To contact the reporter on this story: Ryan Vlastelica in New York at rvlastelica1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Courtney Dentch

©2018 Bloomberg L.P.