UBS Defends Snap in Light of the Layoffs and Claims that the Slowing Growth ‘Likely Bottomed’ in July


The price of Snap’s shares has dropped by almost 80% this year.

On Thursday, UBS defended Snap (NYSE:SNAP), claiming that declining growth “likely bottomed” in July, recovered in August, and has the potential to pick up speed due to simpler comparisons and technological advancements.

According to analyst Lloyd Walmsley, who rates Snap as a buy and has a $15 price target, the anticipated 12% gain in August was due to easier comparisons as well as “moderate improvements” in spending.

According to the letter Walmsley sent to clients, “we view the potential for a stronger growth outlook and increased cost discipline to generate favorable consensus estimate revisions and multiple expansion in Snap shares.”

The analyst continued by saying that the company’s August increase “bodes favorably for the remainder of the online ad market.” Shares of the company traded slightly lower in the morning at $10.84.

On Wednesday, Snap said that 20% of its workforce would be laid off and that the company’s current quarter revenues were on track to increase by just 8% year over year, significantly less than anticipated.

Walmsley noted that third-quarter sales growth would be just under 10% year-over-year if the remainder of the third quarter can grow at 12%, which would be “in line” with the most recent quarter. Even though the advertising market is still “uncertain,” comparisons get simpler from there.

Recently, the company saw a management shake-up as a result of Netflix (NFLX) hiring Jeremi Gorman as its chief business officer and Peter Naylor as its vice president of advertising sales.

Snap’s Restructuring strategy

Approximately 20% of Snap’s more than 6,400 employees will be laid off, according to people familiar with the situation. The layoffs, which the company has been preparing for the previous few weeks, will start on Wednesday and will have a greater impact on some departments than others, according to the sources. One team that will be negatively impacted is focusing on ways for developers to create games and small apps inside of Snapchat. Big changes will also be made to Zenly, the social mapping software that the company purchased in 2017 and has since operated independently.

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