- Snap has recently redesigned the Snapchat app to make the distinction between friends and brands clearer.
- Users have reacted overwhelmingly negatively to the visual changes.
- This prompted analysts at Citi to downgrade its stock rating from“Neutral” to “Sell.”
Wall Street is not impressed by the Snapchat redesign.
Analysts at Citi bank are the latest to downgrade Snap’s stock rating, going from “Neutral” to “Sell” in a note to investors on Thursday morning. Raymond James similarly downgraded the stock to “Underperform” earlier in January.
Analysts Mark May and Hao Yan wrote: “While the recent redesign of [Snap’s] flagship app could produce positive long-term benefits, [there is a] significant jump in negative app reviews since the redesign was pushed out a few weeks, which could result in a decline in users and user engagement, and could negatively impact financial results.”
Snap has been rolling out a redesign for Snapchat over the last few months, with the intent of clearly separating “the social from the media” and making the app easier to use for newcomers.
Although the aesthetic tweaks aren’t major, users have mostly responded negatively.
Citi’s graph below shows the massive jump in one-star reviews of the app in the last two months.
Citi also cited Snap’s move to self-serving ads, suggesting they might create a squeeze on pricing, its weak free cash flow, and its high valuation.
The choice to downgrade Snap’s stock doesn’t come without risks, however.
Citi warned that, in the longer term, the app’s redesign could “benefit monetization near term despite some overall user and usage headwinds, if time spent on commercial content rises.”
In other words, the redesign could be successful and persuade lots more people to spend lots more time on Snapchat. That, in turn, would boost ad spend. Snap’s slowdown in hiring might also turn out to be good news for its bottom line.
Citi’s price target moved from $18 (£13) to $14 (£10).