- Snap's price target has been slashed to $5 from $7 at Morgan Stanley. The bank maintains its "underweight" rating.
- Morgan Stanley was the lead underwriter for Snap's initial public offering in March 2017. When the firm issued its first research note on Snap, it had a $28 price target and an "overweight" rating.
- Snap has tumbled 65% since going public and has lost popularity since its Snapchat app's redesign in February.
- Watch Snap trade live.
Snap's lead initial-public-offering underwriter, Morgan Stanley, has slashed its price target for the stock to $5 from $7 while maintaining its "underweight" rating. The new target is 17% below where shares were trading Thursday.
"Platform headwinds and question marks remain," a team of Morgan Stanley analysts led by Brian Nowak said in a note distributed Thursday. "We see slower user and advertising growth holding back free cash flow."
The team said that it didn't expect Snap to generate positive free cash flow until 2022 and that its bear case for the stock was $3.
In March 2017, Morgan Stanley led Snap's IPO, raising $3.4 billion. Shares were priced at $17 apiece before opening for trading at $24.
Nearly a month after Snap debuted, on March 27, 2017, Morgan Stanley issued its first research note on the social-media company, assigning a $28 price target and an "overweight" rating. Within 24 hours, the bank issued a correction on its note, changing a range of important metrics in its financial model — but not its $28 target.
Then, in July 2017, the bank's analysts said they were "wrong about Snap's ability to innovate and improve its ad product." The team downgraded Snap to "neutral" and trimmed its price target to $16 from $28.
After trading near Morgan Stanley's price target later in 2017, Snap skyrocketed above $20 following blockbuster quarterly earnings out on February 6, 2018. But the rally didn't last long. On February 21, the social-media celebrity Kylie Jenner blasted the Snapchat app's redesign and said her days of using the app were over.
Shares have since fallen 70% as the company lost popularity following its redesign and had to deal with sustained pressure from Facebook and Instagram, which has contributed to a declining user base.
In August, the company said in its second-quarter earnings release that it had suffered its first decline in sequential daily active users. That trend continued in its third quarter, when the company said its number of daily active users fell by 1% and that it expected further declines in the fourth quarter.
Snap is set to report fourth-quarter earnings on February 4, and Morgan Stanley says third-party data suggests Snapchat downloads have declined 15% on an annual basis, indicating the weak user trends will continue.
"We also hear of ad dollars moving away from Snap toward Facebook given Facebook's reach and targeting advantage," the team added.
Snap is down 65% since it went public.
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