Shares of Snap are on track for their worst week since November 2017, plunging as much as 8 per cent on Thursday after reality TV star Kylie Jenner tweeted that she no longer uses the Snapchat app following its redesign.
Jenner's tweet comes on the heels of a downgrade from Citigroup earlier this week. Citi singled out the backlash against Snapchat's redesign as the main reason they downgraded the stock to a sell rating.
Snap CEO Evan Spiegel had originally announced the redesign in a Nov 7 earnings letter to investors, when he promised the company was taking steps to make its app more user-friendly. Since its rollout began at the start of the year, Snap has found itself defending the redesign, most recently on Wednesday when it responded to a Change.org petition with the title "Remove the new Snapchat Update."
Despite the growing criticism, Snap shares are still up more than 18 per cent this year. According to Chantico Global CEO Gina Sanchez, the redesign debacle may get in the way of a recovery by Snap.
"I've always been sceptical of Snap because I think it's very difficult for them to monetise," she said on the "Trading Nation" segment of "Power Lunch" on Thursday. "Obviously what Kylie Jenner was reacting to was the redesign of the app, which makes it easier or at least makes it possible for Snap to try and monetise the business," said Sanchez.
Sanchez noted that Jenner's comment speaks to the demographics of its users, which could put the stock in hot water. "[But] of course the group that uses it, which is the 18- to 24-year-olds, they're going to hate that. They have the attention span of a gnat," she added. "I think it's going to be challenging because they're going to have to move into an older group and I'm not sure that's going to work. I think that's a risk."
On a more technical basis, Miller Tabak equity strategist Matt Maley says that while it's too early to tell where Snap is headed, he is watching one level in particular. According to Maley, the $17 level in Snap used to be "resistance" that the stock broke above, and now the stock is retesting that $17 price. Should it break below what is now that $17 "support," says Maley, Snap could be in trouble.
Maley also believes many of the investors betting against Snap have covered their shorts, which could boost the stock.
"The other thing to think of is that it used to have a lot of short interest, but a lot of that got covered when it rallied 47 per cent when it just reported its earnings," he explained. "So keep an eye on that $17 level. If it breaks below that, that's going to be a problem."
Snap shares are down 16 per cent this week.
This article was first published in CNBC.