Snap Stock Sinks After Downgrade. Why the Road Ahead Could Be Rough.

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Snap stock sank on Thursday after an analyst at Cowen cut his rating and price target on shares of the Snapchat parent company.

Cowen analyst John Blackledge lowered his Snap (ticker: SNAP) rating to Market Perform from Outperform and slashed his price target to $45 from $75. Snap stock fell 10% to close at $38.38 on Thursday.

Blackledge cited near-term concerns about the impact of Apple ‘s iOS 14.5 changes, which forced apps to ask users to opt into advertisement tracking. Snap stock slid in October after the company’s sales showed a hit from the change. He says the changes could continue to hamper Snap’s measurement, targeting, and attribution for direct response ad units. Direct response is a kind of ad where the user is encouraged to buy or sign up for a service.

Blackledge cited a Cowen survey of 54 U.S. advertisement buyers in December 2021 where respondents pointed to a noticeable decline in return on investment, challenges regarding attribution and measurement, and a lessened ability to re-target consumers. The survey suggests the Apple changes will remain a headwind in 2022, according to Blackledge.

For Snap specifically, the company is also facing difficult first-half comparisons in 2022, which could present issues for the stock in the near-term. Still, the analyst continues to believe Snap’s ad business will grow about 34% annually from 2022 to 2027, with earnings before interest, taxes, depreciation, and amortization margins ramping up along the way.

“This type of growth warrants a premium to peers,” Blackledge wrote. “But with near-term headwinds, valuation appears a bit rich.”

Write to Connor Smith at connor.smith@barrons.com