Snap’s lack of innovation, coupled with the widely criticized redesign of its Snapchat application and low quality advertisements on the platform are a just a few of the reasons behind the downgrade.

Snapchat’s sagging share price is making it tough to retain talent. TechCrunch reported that Bobby Lo, founder and CEO of mobile search app Vurb that Snap Inc acquired for $114.5 million two years ago is leaving day-to-day operations at the company. That means Lo cut out early on his four-year retention package vesting schedule, which was likely influenced by Snapchat falling to new share price lows.

Snap Stock Price Prediction

Snap stock could dive to $5 within a year, analyst warns…‘We do not believe the pain is over,’ writes BTIG

Snap Inc. shares are getting hammered in trading, after an analyst at BTIG cut his rating to sell from neutral and warned that the share price could get cut by nearly half within a year.

The downgrade comes as Snap SNAP, +0.27% faces both internal and external pressure, amid executive departures and competition from Facebook Inc.’s FB, -0.27% rival social-media app Instagram. Shares have tumbled 26% over the past month. They’re off nearly 8% toward a record low in Wednesday’s session alone.

“We do not believe the pain is over,” wrote BTIG’s Richard Greenfield, who set a target price of $5.

Greenfield is concerned about monetization trends at Snapchat, given his understanding of user preferences. Young people on Snapchat tend to like messaging their friends through the service, but he sees relatively weak interest in creating or watching Stories.

“Unfortunately for Snapchat, messaging monetization is far weaker than stories/Discover content,” he wrote. Discover is where Snap houses non-friend content from professional publishers as well as influencers and other Snap users who’ve made their content available to all. Multiple Discover publishers told Greenfield that their traffic is down 50% from the peak.

He also worries about the lack of product innovation at Snap and what he deems to be the declining quality of ads on the service. Ad quality suggests to him that higher-tier advertisers might be giving up on Snapchat.

Snap Stock Price: Concerns about user trends

Jefferies analyst Brent Thill reduced his price target to $11 from $14 due to his concerns about user trends. Thill’s recent look at Android usage indicated that daily-active-user counts and time spent on Snapchat both “continued to trend negatively.” He worries that if some users see their friends leave the platform, they’ll also see less reason to open the Snapchat app.

Thill has a hold rating on the stock, which is down 40% over the past 12 months as the S&P SPX, +0.49% as gained 16%.

Ari Wald on Snap Stock Price: The pain has only begun

According to Ari Wald, CNBC, head of technical analysis at Oppenheimer, the stock’s recent fall below a key $10.50 level also suggests the pain has only begun.

Snap shares have been on a free fall, down more than 66 percent since its highly anticipated market debut in March 2017 as competition for users in the social sphere heat up. Facebook’s adoption of “Stories” — a popular 24-hour photo and video sharing feature — on its rival Instagram app now attract more than double the daily active users than that of Snapchat, according to BTIG.

Boris Schlossberg: Snap’s failure to keep up with Facebook puts it in danger of becoming the “next Myspace of social.”

Boris Schlossberg, managing director of FX Strategy at BK Asset Management, believes Snap’s failure to keep up with Facebook puts it in danger of becoming the “next Myspace of social.”

“Facebook has completely destroyed [Snap] with Instagram stories,” he said. “The next big hit could be that the advertisers simply just move completely over to Instagram, where the max amount of audience is.”

Despite Snap’s failure to post gains, Schlossberg warns against shorting the stock because its disintegrating value could make it a potential takeout target.

Snap Stock: Dead man walking

“[Snap] could be a takeout candidate, for example for Alphabet, which could really use a backend into social, but otherwise it’s really dead man walking and I do not want to own this stock,” Schlossberg said.

Can Snapchat stock continue its rally?

There are a few things to consider here. The first is that technology and the broader markets have momentum right now, and so do some of Snap’s peers, like Facebook (NASDAQ:FB).

Should that momentum persist, I see no reason why Snapchat stock cannot continue higher as well. And keep in mind, I’m no raging bull in Snap. In fact, I have not liked this one very much at all over the years, save for a few short-term long setups on the chart.

In that regard, let’s look at the charts to see what we’re working with.

Snapchat stock rallied from $5 in late December to $7 in early February. For many, this 40% rally would be a sure-fire short. But investors have to realize that, even without solid fundamentals, rarely is it worthwhile to try shorting a stock to zero.

The risk/rewards simply aren’t appropriate. Even at $7, the best case with Snap is picking up $2 on a winning short trade, while risking an unwind up to the $9.25 to $10 area.

Compare that to early August, when Snapchat stock tested prior support near $13.50 and failed. That gave us an immediate target of prior support near $10.50 and a windfall below that. Plus, our risk wasn’t very high because a key level was just overhead.

Enough of the history lesson, where can the stock go now?

Over downtrend resistance (blue lines), the notable $10.50 level and all three major moving averages, and Snap stock has strong momentum. After getting a big boost last week on an analyst upgrade, Snap is consolidating the gains nicely. If it can continue consolidating over this $10.50 level, the odds it takes out its recent highs over $11.40 increases.

From there, Snapchat stock can make its way up toward $13.25 to $13.75, up almost 25% from current levels. Of course, a move like that wouldn’t take place overnight. But there’s no reason to fight a trend until the stock breaks away from it. On the flip side, below $10.50 and the backside of prior downtrend resistance near $9.75 is the next line in the sand.

Evaluating Snap Stock

So why don’t we like Snap stock from a fundamental perspective? Last quarter, the company grew revenue more than 36% year-over-year, beating analysts’ expectations and hitting a quarterly record. A loss of 4 cents per share came in 4 cents ahead of estimates too. It’s clear why Snapchat stock rallied so big off these numbers.

The company’s strategy is becoming more clear as it invests in improving its content and making the platform more attractive for users. That’s great if it works. So far, Snap is only treading water. Daily users of 186 million is flat sequentially and year-over-year. On the plus side, revenue is up big despite that flat user count, but this is not something to hang your hat on.

Here’s why I don’t like Snap as an investment. Despite the record revenue last quarter, the company still burned almost $150 million in cash. While its net loss improved by $158 million vs. the same quarter in the prior year, Snapchat stock still logged a net loss of $192 million. Ouch. Free cash flow over the trailing 12 months stands at an $812 million deficit.

It simply can’t get out of the red.

The Bottom Line on SNAP Stock

Currently, Snap has $1.28 billion in cash and short-term investments, down a whopping 37% year-over-year from $2.04 billion. On the plus side, Snap stock doesn’t have any debt.

But if it can’t stem its cash-bleeding ways, it may need to raise capital. Getting to cash flow positive territory would be a much better alternative to taking on debt or selling equity.

At this point, the stock is trading much better than the fundamentals would suggest. For now, we don’t bet against that. But we’ll re-evaluate down the road.