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Snap CFO Exits, Top Analyst Downgrades the Stock, Investors Take Cover


Did an iceberg just wallop into Snap (SNAP) stock? The social media giant’s shares plunged today at breakneck speed of almost 14%. The cause of the sell-off was the company’s disclosure that CFO Tim Stone will be leaving only 7 months after joining from Amazon. His exit is the latest of a growing line of Snap execs to jump ship, such as CSO Imran Khan, VP of Hardware Mark Randall, VP of Comms Mary Ritti, VP of Marketing Steven LaBella, among others. It’s not clear exactly why Stone is leaving, though Snap says it is “not related to any disagreement with us on any matter relating to our accounting, strategy, management, operations, policies, regulatory matters, or practices.”

Adding insult to injury, RBC’s top analyst Mark Mahaney downgraded SNAP stock from Outperform to Sector Perform. However, Mahaney still sees over 40% upside ahead with a price target of $8.00 a share.

Mahaney commented, “Our take is that this is not the first c-level departure since Snap’s IPO nearly two years ago… or the second… or the third […] We view it as a material negative that Tim Stone announced his intention to resign less than a year into the role. We had viewed Stone as a key positive management addition, given his successful background at Amazon.”

The analyst continued, “Fundamentals have been very uneven since the company’s IPO. Our belief is that this has in part been due to severe competitive pressures (from FB), but also due to very uneven execution. Our hope had been that the May 2018 hiring of Tim Stone as CFO would help improve the company’s execution. With his relatively sudden departure, our confidence in a fundamental turnaround has been lessened.”

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Mark Mahaney has a yearly average return of 21.3% and a 65% success rate. Mahaney is ranked #28 out of 5149 analysts.

On the other hand, Wedbush analyst Michael Pachter believes it is entirely possible that Mr. Stone has just been presented with a compelling opportunity at another company. If that is the case, Pachter points out that his investment thesis is unlikely to change. However, if Mr. Stone departed because of an inability to mesh with other management, the thesis about improving executive quality at Snap may be proven wrong. Meanwhile, Pachter keeps his Snap rating at Outperform with a $12.25 price target, which implies about 117% upside from Wednesday’s closing price. (To watch Pachter’s track record, click here)

All in all, Wall Street believes Mahaney is smart to play it safe when it comes to Snapchat parent firm, as TipRanks analytics reveal the Snap stock as a Hold. Out of 21 analysts polled in the last 3 months, 3 are bullish on the stock, 16 remain sidelined, and 2 bearish. However, with a potential of nearly 34%, the stock’s consensus target price stands at $7.55. (See SNAP’s price targets and analyst ratings on TipRanks)

 

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