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Investing.com -- Snap shares were downgraded by Citizens to Market Perform from Market Outperform following disappointing second-quarter earnings, as advertising revenue growth and user engagement continue to lag behind larger rivals.
Citizens analysts said they were “moving to the sidelines following results” due to “advertising execution still volatile,” and concerns that Snap’s user engagement in key markets is under pressure.
Ad revenue rose just 4% year over year in the second quarter, down from 9% in the prior quarter.
Citizens said this suggested “share loss to other scaled ad platforms,” especially as North America’s daily active users fell by one million for the second straight quarter.
“We upgraded Snap last year with the thesis that Sponsored Snaps could help accelerate advertising revenue,” Citizens wrote. “However, we were wrong.”
Snap’s Direct Response advertising business also struggled. “While we acknowledge Snap is making progress with direct response as purchase-related ad revenue grew 25% Y/Y in the quarter, DR overall grew just 5% Y/Y as Snap is losing share to other scaled ad platforms,” analysts said.
A platform update that inadvertently led to campaigns clearing at lower prices also weighed on performance, according to the bank.
Citizens cited “greater competition for user time and attention” as Meta (NASDAQ:META) and TikTok continue to dominate engagement. “We worry that engagement losses are likely to continue as it is unclear to us how Snap wins back users’ time.”
Citizens also flagged concerns around AI underinvestment and ongoing leadership reshuffles, saying: “As leadership changes, execution tends to slip, which creates another risk to estimates for 2026.”