• by Colin Kirkland , Yesterday

Following CEO Evan Spiegel's open letter detailing Snapchat's “crucible moment,” Wall Street analysts at New Street Research have issued a report downgrading the social media company’s stock due to stagnant North American user growth and ad revenue intake.

“We are downgrading Snap to Neutral from Buy and our target declines to $8 from $11,” the research institute stated in its recent report.

Prior to the downgrade, New Research believed that Snap's direct-response ad offering was still promising due to the growth of the company's small advertiser base over the previous year.

However, Snap's Q2 results -- which suggested user and ad-growth issues in key revenue markets -- including the U.S., changed the analysts' evaluation.

In his recent letter to investors, Spiegel admits to stumbling in Q2, as ad revenue slowed to just 4% year-over-year. The CEO added that by the end of 2025, Snap aims to reach one billion users, introduce its augmented reality (AR) wearables competitor Specs, and boost subscription and ad revenues.

To “reaccelerate” its advertising growth, Spiegel said the company would focus on investing in medium-sized businesses – a segment Snap has yet to maximize – but analysts at New Research believe this effort is “early and unlikely to drive DR ad revenue acceleration back into double digits in the near-term.”

And while Sponsored Snaps -- Snapchat's newest inbox-based ad format -- is driving up to 22% more conversions and 20% lower CPAs, according to Spiegel, New Street finds that the reception to the format remains “lukewarm.”

“Ads in messaging environments remain relatively untested,” the analysts state. “While they represent a relatively small percent of our ad revenue, Sponsored Snaps were more material contributors to year-over-year growth, and we are now modeling a more conservative ramp.”

User growth has also been a concern among Snap investors. Despite adding daily active users by 9 million in Q2 compared to Q1, the company continues to lose users in key revenue regions, like North America, while user growth in the EU remains stagnant.

New Street expresses similar concern over Snap's stagnant user growth, while also pointing to the ever-limiting teen use of social media in response to widespread restrictions and policy changes.

“Aging out of Snapchat after college has been a constant reality,” the analysts state. “The new risk is headwinds to new cohort growth.”

New Street expects to see a 5% decline in Snap's total revenue growth in 2026, from +14% to +9%.