All posts from Zacks
Zacks in Our Research. Your Success.,

Advertising Mogul's Words Send Snap Stock Lower

Snap SNAP just can’t seem to catch a break these days, as the struggling social media company finds its shares down again on Wednesday thanks to an advertising titan’s cautionary words about Snapchat.

Only one day after Morgan Stanley downgraded Snap and lowered their revenue forecast for the company, the chief executive of advertising and communications power WPP made it clear that his clients will spend far more money on Facebook FB and Google GOOGL.

Sir Martin Sorrell spoke with CNBC Wednesday morning about global advertising spending and touched on how Snap has been copied effectively by some of its biggest rivals.

Sorrell’s company spent about $100 million advertising on Snapchat, and he said that number could leap to $200 million in 2017. However, WPP's spending on Facebook was about $1.7 billion last year—and it might balloon to over $2 billion this year. The company’s spending on Google could grow to over $6 billion this year.

"Snap obviously has been copied — plagiarized you could say — by Facebook, and very successfully so," Sorrell told CNBC.

“There has been a concentration on whether Facebook can successfully repulse Snap, and to date, it seems that they have… So what we will see is still significantly greater spending at Google and Facebook.”

It seems clear that Snapchat would not be able to command as much advertising revenue as Google or Facebook. However, since Snap’s business model relies almost entirely on advertising revenue, a global advertising player openly mentioning that Facebook effectively copied its product could prove jarring for investors.

Shares of Snap fell by nearly 2% in morning trading to hover just above its all-time low. Snap has bounced back a little since then, down around 1%. Still, Snap maintains a Zacks Rank #4 (Sell). The stock also sports an “F” grade for Value and a “D” grade for Growth in our Style Scores system.

More Bad News

On top of the negative news on the advertising front, the chief investment officer at Sloy Dahl & Holst didn’t mince words about investing in the young and downtrodden social media company.

Paul Meeks spoke with CNBC recently and touched on the fact that he thinks Snap jumped the gun on going public. Meeks mentioned that the company’s business model was far too new to file for an IPO. The CIO also talked about how vulnerable Snap was, and still is, to being copied by its bigger and more powerful rivals.

"I think Facebook is the one to buy, and if you think about Snap, slap yourself and just buy some more Facebook," Meeks said.

More Stock News: 8 Companies Verge on Apple-Like Run                   

Did you miss Apple's 9X stock explosion after they launched their iPhone in 2007? Now 2017 looks to be a pivotal year to get in on another emerging technology expected to rock the market. Demand could soar from almost nothing to $42 billion by 2025. Reports suggest it could save 10 million lives per decade, which could in turn save $200 billion in U.S. healthcare costs.

A bonus Zacks Special Report names this breakthrough and the 8 best stocks to exploit it. Like Apple in 2007, these companies are already strong and coiling for potential mega-gains. Click to see them right now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Facebook, Inc. (FB): Free Stock Analysis Report
Alphabet Inc. (GOOGL): Free Stock Analysis Report
Snap Inc. (SNAP): Free Stock Analysis Report
To read this article on click here.
Zacks Investment Research