Since going public on March 2, SNAP has been hit with a variety of negative headlines and events. First, bearish analyst initiations (Sell at Pivotal Research, Reduce at Nomura, Underperform at Needham, etc.) set a negative tone for the stock and wiped away some of the enthusiasm surrounding the IPO. It didn't take long for the good vibes to end, either, as the stock sank below its opening price just a few days later on March 7.
Then, in late March, headlines began swirling about Facebook (FB) launching a competing product called "camera effects" and "stories". After testing Stories in Ireland, FB now has versions of SNAP's features across its apps, which is an obvious negative for SNAP. Adding insult to injury, a few weeks later it was reported that FB's Instagram Stories had more DAUs that SNAP. As the leading social media platform, and with far superior fundamentals, it's not difficult to understand why many investors would flee SNAP for FB, considering that FB now essentially offers the same application.
Once those headlines were in the rear view mirror, the stock did begin to perk up in mid-April through early May. The stock was closing in on its $24 IPO opening price. That is, until it reported its Q1 results on May 10 which resulted in a massive 22% nose-dive the next day. SNAP missed on both the top and bottom lines -- a rarity for a new IPO -- and DAUs came in lighter than anticipated at 166 million, and grew only 5% for the quarter. The shortfall only added fuel to the fire concerning FB's competitive threats.
Fast forward to today's move, and once again, the stock is getting hit on some cautious notes from the analyst community. Aegis Capital lowered their price target to $19 citing weak sales of SNAP's Spectacles, questioning whether the product will see a similar fate as Google Glass. A disappointing performance out of the Spectacles product would represent a significant concern because SNAP has invested rather heavily in the project as a way to diversify its revenue stream. Along with the cautious note from Aegis, Morgan Stanley also downgraded the stock to Equal Weight from Overweight.
At this point, the one clear positive that can be said about SNAP is that its valuation has come down from astronomical levels to something a little more reasonable. At the moment, it is trading with a 1-Year Forward P/S of 10.5x. That still looks high on the surface, but, recall that SNAP's P/S once sat north of 30x. Whether the slash of valuation is enough to entice buyers in now remains to be seen, however.