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Snap Loses Wall Street Fan Base as ‘Cash Bonfire’ Rages On

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(Bloomberg) -- Snap Inc. finds itself increasingly abandoned by Wall Street, with more than a dozen brokerages downgrading the social media company’s stock in the wake of disappointing sales figures that sent shares into a tailspin.

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At least 14 brokerages and investment banks including Evercore ISI, KeyBanc and Oppenheimer, downgraded their recommendations and price targets since late Thursday, when Snap reported second-quarter revenue that missed estimates and held back guidance for the third quarter. Morgan Stanley on Monday went as far as slapping the stock with a double downgrade, adding fuel to a selloff that has seen shares fall nearly 80% so far this year.

Snap and other social-media shares including Meta Platforms Inc. and Pinterest Inc. are under pressure as advertising spending by businesses, among their biggest revenue drivers, cools amid fears of a global recession and as competition from the likes of TikTok increases. The downturn may be even more severe for Snap as its ad business is less developed, analysts said. Brian Nowak at Morgan Stanley, cut the stock’s price target to $8 from $17 citing TikTok’s threat to the company’s ad revenue as higher than previously anticipated.

“The cash bonfire at Snap shows no signs of abating,” said David Trainer, chief executive officer of New Constructs, an investment research firm based in Tennessee. “Snap’s year-over-year user growth has consistently slowed in recent quarters, much as we’ve seen with other companies single-mindedly focused on user growth, such as Netflix and Pinterest.”

Snap representatives declined to comment on the downgrades.

JPMorgan’s Doug Anmuth, who cut his rating to underweight from overweight, also cited TikTok as an overhang for Snap’s shares. “TikTok’s strong engagement and rapid monetization growth are having an outsized impact on Snap’s business,” he said.

The downgrades and price cuts brought Snap’s consensus rating -- a proxy for its ratio of buy, hold, and sell ratings -- to about 3.6 out of five, the lowest for the Snapchat parent since late 2019 and below that of Meta Platforms.

Snap shares closed at $9.95 in New York, below the 2017 IPO price of $17, bringing total losses in market value so far this year to almost $60 billion.

“We had expected soft SNAP results, but the magnitude of the weakness still surprised us,” Evercore ISI analysts led by Mark Mahaney said in a downgrade report last week. “When fundamentals change this dramatically, it’s hard for us not to change our investment opinion.”

(Updates share price moves throughout.)

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