Snap shares tumbled in premarket trading on Wednesday after Citizens downgraded the social media company following a second-quarter revenue miss.
Analyst Andrew Boone cut his rating on the stock to market perform from market outperform and removed his previous $12 per share price target.
The downgrade came as Snap’s second-quarter revenue came in at $1.34 billion, slightly below the $1.35 billion analysts surveyed by LSEG had expected.
The company also reported global average revenue per user (ARPU) of $2.87, falling short of the $2.90 consensus estimate.
Shares dropped 18% in premarket trading on the news.
Competition and Engagement Challenges
Boone cited rising competition for user time and attention as a key headwind.
While Snap reported year-over-year growth in both global time spent watching content and the number of content viewers, the company did not provide North America-specific engagement data.
Boone expressed concern that the time spent in that market may have declined.
“We worry that engagement losses are likely to continue as it is unclear to us how Snap wins back users’ time,” Boone wrote in a note to clients.
He also flagged that competitive pressure from larger platforms could exacerbate the challenge.
The analyst noted that Snap’s pullback in infrastructure spending in recent quarters may save money in the short term but could result in underinvestment in artificial intelligence capabilities.
Such technology has become increasingly important for competing in content personalization, user engagement, and digital advertising.
Financial constraints and ad revenue slowdown
Boone acknowledged Snap’s strong cash position of $2.9 billion but projected that the company will post just 8% EBITDA margins in 2025.
He questioned whether the company has the financial flexibility to make the “material AI investments” needed to keep pace with larger rivals in both user engagement and ad monetization.
The advertising segment remains a particular concern. Snap’s ad revenue grew 4% year over year in the second quarter, a slowdown from the 9% growth recorded in the first quarter.
Boone described the company’s advertising execution as “still volatile,” adding that this uncertainty contributed to Citizens’ decision to move to the sidelines.
“With advertising execution still volatile, we are moving to the sidelines following results as we believe the risk/reward in shares is now balanced,” Boone wrote.
Analyst sentiment remains largely neutral
Boone’s downgrade aligns with the broader analyst sentiment on Snap, which remains cautious.
According to LSEG data, of the 43 analysts covering the stock, the majority — 33 — have a buy or strong buy rating.
The remainder hold more neutral views, reflecting ongoing concerns about monetization, engagement trends, and competitive pressures.
For now, Citizens sees limited near-term upside for the stock, with the second-quarter miss underscoring the challenges Snap faces in regaining user attention, stabilizing its advertising business, and investing adequately in AI infrastructure to compete with larger social media players.
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