Lead Underwriter Morgan Stanley Downgrades Snap Inc.

Snap Inc. Update:  Bad News for Investors

Morgan Stanley, the lead underwriter on the initial public offering of Snap Inc. downgraded the stock and raised concerns about the social media company’s ability to compete with Facebook, Inc.’s (FB.O) Instagram on Monday.

The ratings move is unusual by a lead underwriter so soon after a listing– just four months after the Snap Inc.’s IPO, the hottest U.S. technology company in years, according to reports.

Morgan Stanley cut its rating to “equal-weight” from “outperform” and slashed its price target to $16 from $28, below the median target of $19.50.

Snap shares have fallen close to 45 percent from a high hit shortly after their debut and slipped under their $17 IPO price for the first time on Monday.

They were last at $16.12, down 5.1 percent on the day, after falling as low as $15.84.

Reportedly, Snap’s user growth trends have been modestly weaker than expected.

“We have been wrong about Snap’s ability to innovate and improve its ad product this year and user monetization as it works to move beyond ‘experimental’ ad budgets into larger branded and direct response ad allocations,” according to Morgan Stanley analyst, Brian Nowack.

A fresh round of selling could follow the July 29 expiry of the stock’s lockup period, after which certain insider investors are allowed to unload their shares.

Snap Inc. faces growing competition from Facebook, which once made a $3 billion bid for Snapchat. The Snapchat disappearing-message app is popular with users under 30, but many on Wall Street have long been critical of Snap’s lofty valuation and slowing growth.

Facebook has made the camera central to its apps and offers Snapchat-like features on its Instagram and WhatsApp platforms. In June, Instagram said its Stories feature had 250 million users, compared with 166 million users for Snapchat at the end of the first quarter.

Morgan Stanley cut its estimates for Snap’s 2017 revenue by 6.9 percent to $897 million, and daily active user expectations by 1.6 percent to 182 million.

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