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Snap gets slammed with another downgrade: Morgan Stanley sees 'monetization' challenges

  • Morgan Stanley analysts lower their rating on the stock to underweight from equal weight.
  • They say Snap's weak results "speak to growing challenges facing SNAP's monetization potential and user opportunity."
  • The move comes a day after other firms downgraded Snapchat's parent.
A man uses the SnapChat app on an Apple iPad Mini.
studioEAST | Getty Images
A man uses the SnapChat app on an Apple iPad Mini.

Snap shares were downgraded Thursday for the second-straight day, this time by Morgan Stanley, following the social media company's disappointing third-quarter results.

Morgan Stanley analysts lowered their rating on the stock to underweight from equal weight. They also reduced their price target to $11 a share from $14. Shares of Snapchat's parent fell 4.1 percent to $12.38. This follows a 15 percent plunge during Wednesday's trading.

In a note to clients, Morgan Stanley analyst Brian Nowak said the company's weak results "speak to growing challenges facing SNAP's monetization potential and user opportunity."

On Wednesday, analysts from RBC Capital Markets, UBS and Stifel —among others — downgraded Snap in the wake of the earnings report.

Snap on Tuesday reported third-quarter revenue of $207.9 million, well below the expected sales figure of $236.9 million. Daily active users — a key metric of engagement for Snap — totaled 178 million, below an estimated 181.8 million.

Nowak also said he sees "structural hurdles to SNAP's core ad unit format," and that "the pending app redesign creates further engagement/execution risks." After the results were released, Snap CEO Evan Spiegel said Snapchat would get a redesign that will include a new feed inspired by Twitter and Facebook. He said the redesign would make it easier for more people to use the app.

"Lastly, FB/Instagram competition is only increasing," Nowak said. Snap has been losing market share to Facebook-owned Instagram, especially since the latter launched its Stories feature last year.