Snap Stock Dips After Analyst Says It’s “Quickly Running Out Of Money”

Shares in Snapchat parent Snap Inc. are trending downwward after a brutal report from a Wall Street analyst warning that the company is “quickly running out of money.”

The stock has dropped more than 5% today to near the $7 level, its low point over the past year.

Veteran media and tech analyst Michael Nathanson sent a blistering note to clients, warning that the social media company is “quickly running out of money” and needs a “miracle” solution. Its war chest could be completely empty by 2020, he projects.

Nathanson cited a memo from Snap CEO Evan Spiegel that leaked last week. In it, Spiegel outlined 2019 goals of accelerating revenue growth while achieving positive full-year cash flow and profitability. While the memo suggests Snap is “attempting to do the impossible,” the analyst wrote, “Facebook is ramping [Instagram] Stories usage and monetization across its massive installed base.”

Expecting lower growth in revenue and users, Nathanson lowered his 12-month price target to $6.50 from $8, though he kept his neutral rating on the shares.

Since its IPO in early 2017, Nathanson argues in the report, Snap has shown it is “not quite ready for the big leagues.”

Free cash flow has declined to negative $250 million per quarter in 2018, the analyst said.

“As capital expenditures have remained relatively modest, the main culprit behind Snap’s diminishing cash balance has been its core operations,” Nathanson wrote. “If the current cash burn holds, Snap will have to raise new funding in the back half of 2019!”

The “self-inflicted damage” of an unpopular app redesign in fall 2017, along with its forthcoming Android app, Nathanson said, has been accompanied by increased competition. Facebook-owned Instagram has increased daily active user levels for Stories to about 400 million in July 2018, from 250 million in July 2017.