It’s not Groundhog Day, although it might feel like it for Snap Inc. shareholders.
The Snapchat parent company slid to another new all-time low on Wall Street on Tuesday morning, coinciding with one analyst raising concerns the popular app is on the verge of falling off a financial cliff.
“Running Snap’s business has been a significant cash drain,” said MoffettNathanson analyst Michael Nathanson in a note to clients. “If the current cash burn holds, Snap will need to raise new funding in the back half of 2019!”
After falling more than 5 percent, Snap shares hit $7.08 during midday trading, marking a fresh nadir for the Los Angeles-based company. Snap shares are down 52 percent since the start of 2018.
Snap has routinely posted big quarterly losses since going public in March 2017 — although its $353 million loss during the second quarter of 2018 came in slightly below the analyst projections, giving its share price a short-term jolt. Snap started the year with $2 billion in cash, and has burned about $500 million already — giving it another year or two of runway at its current pace.
Snap CEO Evan Spiegel, in a memo to staff last week obtained by Cheddar, set a goal of reaching full-year profitability in 2019. Nathanson doesn’t see that happening, estimating a $1.5 billion loss next year for Snap.
“We do not see Snap reaching profitability in the near future unless there are substantial expense reductions,” Nathanson said.
Nathanson isn’t the only analyst critiquing Snap recently. Citi dropped its target price for Snap to $7 last week, as did Evercore analyst Anthony DiClemente in a note to clients. According to DiClemente, the thorn in Snap’s side, as usual, is Instagram.
“We believe that competition (particularly from Instagram) is irreversibly reducing SNAP’s opportunity to deliver on long-term investor expectations,” DiClemente said in his note shared with TheWrap. He added that “softening” user growth, along with there being “no evidence to suggest that Snapchat is meaningfully expanding the pool of advertisers,” all contributed to its lowered price target.
As TheWrap reported last week, 2018 has been an exercise in Murphy’s Law for Snapchat. The app lost 3 million daily users during the second quarter — with Snap chief Evan Spiegel pointing to its much-maligned app redesign as the reason users jumped ship. (Snap decided to redesign its redesign in May.) Instagram has continued to grow while leveraging many of the features Snapchat created first, boasting 400 million daily “Stories” users — more than double Snapchat’s entire user base. And a string of high-level departures, punctuated by the exit of chief strategist Imran Khan in September and VP of Marketing Steve LaBella last week, has only drawn more investor skepticism.
Still, there are a few rays of hope for the Snapchat faithful. Despite its unsightly drop in users last quarter, Snap posted better-than-anticipated sales during the second quarter, with revenue up 44 percent year-over-year to $263 million. Snapchat still wildly popular with teenagers. And the company plans on launching new shows on its Discover feed– perhaps giving old users a reason to check Snapchat out once again.