What’s Driving The Big Snap Selloff?

Snap (NYSE:SNAP) has seen its stock price decline by around 25% over the past month, touching all-time lows of around $9 per share, and the stock is down by roughly 40% since the beginning of the year. This has been driven by a decline in its daily active user base, driven by intense competition, primarily from Instagram. Below, we look at some of the reasons for Snap’s poor performance.

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Snap’s Daily Active User Base Declined Last Quarter

The Daily Active User metric is perhaps the most closely watched metric for young social media companies, and Snap disappointed on this front during Q2, indicating that the number declined from an average of 191 million daily active users in Q1 to just 188 million in the second quarter, as the company witnessed user attrition following its controversial app redesign which was introduced late last year. Although Snap has rolled out an optimized version of the app over Q2 with key UI changes, it’s possible that the updates came in too late, causing several long-term users to abandon the app.

Competition May Be Hurting Revenue Growth

Snap’s key rival Instagram also continues to gain a lot of traction. The Facebook-owned platform has quickly and successfully replicated many of Snap’s best features, rolling them out to its user base which now stands at over 1 billion. Instagram is also pushing deeper into premium content while doubling down on its e-commerce efforts. This is likely limiting demand for Snap’s ad inventory while hurting the company’s growth. For instance, Snap has guided for revenues of between $265 million and $290 million this quarter, well below the consensus estimates from analysts of over $400 million a year ago.

Wall Street May Be Souring On The Stock

Wall Street appears to be souring on Snap’s stock, with some major banks issuing downgrades on the stock citing the lackluster growth and user declines. For instance, Citi has slashed its price target to $8, while Jefferies reduced its price target to $11, noting that daily average users and time spent on the app were trending lower in key markets. Moreover, investors are likely to flock to quality names with stable cash flows in an increasingly volatile market, hurting Snap’s stock price.

Senior Executive Departures

Snap is also seeing multiple senior executives depart the company. Last week, Chief Strategy Officer Imran Khan, who was instrumental in taking the company public, said that he would be leaving the company, although a definitive date for his exit hasn’t been announced. His announcement follows other high-profile departures including finance head Andrew Vollero and vice president of monetization engineering Stuart Bowers.

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