Multimedia instant messaging app Snap Inc. (NYSE:SNAP) does not evoke enough confidence to stay bullish on its stock, according to an analyst at Wedbush.
The Snap Analyst: Ygal Arounian downgraded Snap shares from Outperform to Neutral and reduced the price target from $56 to $36.
The Snap Thesis: Snap's revenue growth faces risk from a trio of factors, Arounian said in a note.
The social media platform has made little progress against Identifiers for Advertisers, or IDFA, since the company reported its third-quarter results, the analyst noted. IDFA is a random device identifier assigned by Apple, Inc. (NASDAQ:AAPL) to a user's device.
This has the biggest near- and potentially mid-term impact on Snap's ability to get back to 50%-plus revenue growth, the analyst said.
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Secondly, the company is facing difficult comparisons against the stellar growth seen in fiscal years 2020 and 2021, Arounian noted.
The analyst also sees competitive factors increasing, particularly from TikTok. TikTok and Snap share very similar audiences, putting the latter's engagement/time spent and ad dollars at risk, the analyst said. The Chinese app is gaining traction with advertisers, which could put pressure on Snap's budgets.
Wedbush, therefore, is more cautious on a risk/reward basis, particularly in an environment where high growth risk multiples are under duress.
Snap still has a great foothold among younger demographics, is very well positioned in AR, and is an opportunity to better monetize through Discover, Maps, and Spotlight.
This renders a balanced view on risk/reward, Wedbush said.
Snap Price Action: At last check, Snap shares were down 3.70% to $30.93.
