Analysts and underwriters operate in separate departments at investment banks and are technically barred from working together. But the apparent contradiction highlights how quickly Wall Street has soured on the Snap, which has been having a rough time since its public debut on March 2.
"We have been wrong about Snap's ability to innovate and improve its ad product this year," Morgan Stanley analyst Brian Nowak said in the note, according to multiple reports. He cited slowing user growth and competition from Instagram as factors.
Morgan Stanley also cut its rating of the startup from "outperform" to "equal-weight" and lowered its price target to $16 a share. That's below both the $17 at which Snap debuted and the median target price of $19.50, according to Reuters.
Reaction from Wall Street was swift, with shares dropping as low as $15.44 and closing at $15.47, down nearly 9 percent. The stock has lost almost half its value since its post-IPO peak of $29.44. On Monday, Snap shares closed below their IPO price for the first time.
The messaging company, which lets users communicate via disappearing photos and videos, is popular with people under 30 but has yet to demonstrate the kind of broad user growth investors have been eager for. Snap's user base grew just 5 percent in the first quarter, to 166 million.
It added a low 3 million North American users, the segment that generates its advertising revenue. The app is feeling increased competition from Instagram, whose Snap-like feature, Instagram Stories, has 200 million daily users.
Nowak also wrote that he expected Snap to remain unprofitable through at least 2020.