Snap stock downgraded by JMP on increased competition

·2 min read

Snap's (SNAP) gotten another downgrade, this time from Andrew Boone, analyst at Citizens-owned JMP Securities, from Market Outperform to Hold.

In December, Jefferies downgraded Snap from a Buy to Hold, saying that the company's revenue expectations were "too optimistic."

To be sure, Snap's struggling at a moment in which all tech giants are stumbling, but even in that context Snap's challenges are singular – the company's shares have declined about 73% over the last 12 months, as it battles a difficult macroeconomic climate and slow advertising market. For Boone's part, he's held off on the downgrade – until now.

"While we acknowledge we are late with this downgrade, it reflects our preference for Meta (valuation) and Google (search has higher revenue visibility) over Snap while both have more mature short-form video products, which we expect to attract more user time over the next few years," he wrote in a note to clients.

Boone cited increased competition from Alphabet-owned (GOOG, GOOGL) YouTube and Meta-owned (META) Instagram, which both have short-form video offerings of their own, respectively Instagram Reels and YouTube Shorts. TikTok, of course, is also a key competitor, and the increasingly crowded market that is beginning to take its toll on Snap. Time spent on Snapchat fell 7% year-over-year, as of the last quarter of 2022, Boone wrote, signaling that these other platforms are perhaps gaining steam. This spiking competition could also affect Snap's monetization opportunities.

"We believe short-form video from TikTok, Reels, and YouTube Shorts are taking share of time from Snapchat’s Discover and Stories," Boone wrote on Jan. 17. "Importantly, these are Snap's most monetizable surfaces as we expect impression growth to be pressured looking ahead."

Still, there is hope for the future, Boone points out, flagging that "Snap remains the leader in AR, though this is likely years away from significantly impacting financials."

Snap is expected to report its Q4 2022 earnings on Jan. 31.

About 70% of analysts who follow Snap currently rate it a Hold, according to the Bloomberg Terminal.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks.

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