- Snap Inc. 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 the company’s stock rating to “Sell” from “Neutral.”
Wall Street is not impressed by the Snapchat redesign.
Analysts at Citi bank are the latest to downgrade Snap Inc.’s stock rating, going to “Sell” from “Neutral” in a note to investors on Thursday morning. Raymond James similarly downgraded the stock to “Underperform” in January.
The 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 past few months, with the intent of clearly separating “the social from the media” and making the app easier to use for newcomers.
Though the aesthetic tweaks aren’t major, users have mostly responded negatively.
Citi’s graph below shows a massive jump in one-star reviews of the app in the past two months.
Citi also cited Snap’s move to self-serving ads, suggesting they may create a squeeze on pricing, as well as 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 monetisation 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 may also turn out to be good news for its bottom line.
Citi’s price target moved to $US14 (£10) from $US18 (£13).
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