Cantor analyst Kip Paulson is out with a new research note on Snap Inc (NYSE:SNAP) ahead of the media mogul’s release of second quarter results tomorrow. Paulson believes that this quarter’s results are going to be all about DAU (daily average users), as the mogul continues to feel the heat from Facebook-acquired Instagram, which continues to dominate on daily average users as well as user engagement fronts.

The solid growth of DAU’s on Instagram Stories poses a direct threat to SNAP, considering that Instagram DAU’s are still growing at an ever quickening pace, while SNAP is expected to decelerate to 26% year over year. Over the past two months, Instagram jumped by 50 million daily active users to reach 250 million, while Snap lags far behind.  “Investors will likely continue to be laser-focused on the trajectory of DAU growth,” believes Paulson.

“Investors were disappointed by the steeper-than-expected deceleration in DAUs (and ad revenue) in 1Q17, with Y/Y DAU growth falling to +36% Y/Y, and we expect further deceleration into the +20% range in 2Q17,” opines the analyst, who emphasizes, “For perspective, FB’s user growth didn’t slow into the +20% range until it hit 584M DAUs in 3Q12. We believe intense competition from FB/Instagram (Overweight) is to blame here.”

Consequently, the analyst is lowering estimates across the board, save for a strong APRU which is expected to drive triple-digit top-line growth. Paulson is lowering Sequential DAU net adds from 23.5 million to 14.5 million and revenue from $209.6 million to $206.1 million.  The analyst is also bringing down EBITDA estimates from its previous evaluation of ($155.1 million) to ($159.2 million). Consensus projects even lower estimates for both revenue and EBIDTA at $186.8 million and ($183.2 million), respectively.

The analyst, however, is increasing his DAU expectations for North America to 76.2 million and Europe to 60.2 million, as both territories have “a highly engaged user base, with users spending over 30 minutes and creating 3B+ Snaps per day.” Overall, Paulson forecasts total DAU a bit above consensus at 181 million vs. 176 million. With this in mind, “Snap still has a rich/engaging canvas for brand advertisers (and content owners) and a young, hard-to-reach audience, so investors shouldn’t throw in the towel yet. With this preview, we’re also updating our DAU estimate for 2Q17, to adjust for overly optimistic net adds in our prior model,” says Paulson.

Paulson is maintaining a Neutral rating on SNAP with a price target of $17.00, representing a near 32% rise in current trading levels. (To watch Paulson’s track record, click here)

TipRanks analytics demonstrate SNAP as a Hold. Out of 31 analysts polled by TipRanks in the last 3 months, 11 are bullish, 5 are bearish, while 15 remain sidelined on Snap stock. With a potential upside of nearly 57%, the stock’s consensus target price stands at $20.44.