After being battered last week by two downgrades, shares of Snap Inc. were trading at an all-time low of $14.91 earlier today. So the stock has to hit bottom soon, right? Not necessarily. In a new research note from MoffettNathanson, the firm outlined two scenarios that could push Snapchat’s parent company down even further:
1. Seasonal revenue declines: Snap has been fond of saying that its business model is more like the TV industry than a digital platform or social network. But like the TV industry, that model could be subject to seasonal revenue declines in Q2 and Q3, and it’s a long way until fall. “[W]e think Snap’s narrative that disappointing revenue growth is due to seasonality is a scary admission,” analyst Michael Nathanson wrote.
2. A post-lockup sell-off: A lockup on Snap shares that prevented employees from selling their stock expires at the end of the month. Traditionally, that means big sell-offs. (Recode wrote about this yesterday.) As Nathanson wrote, Facebook and Twitter both saw double-digit declines (10% and 18% respectively) after their lockups expired.
MoffettNathanson launched coverage of Snap with a “sell” rating in March, but even the firm has been surprised by how poorly shares have performed. “We had no idea that the stock would collapse this far and fast,” Nathanson wrote.