Another day, another downer on Snap Inc.
In a pessimistic note to investors, Mizuho Securities analysts Neil A. Doshi and San Q. Phan said Snapchat's parent company was more like AOL, Yahoo, and Twitter than Instagram or YouTube.
They wrote: "In our opinion, Snap is neither an Instagram killer nor a YouTube killer. Snap is uniquely different from Twitter, and could be in a position to take brand ad revenue budgets away from Twitter, Yahoo, AOL and other sites."
It isn't exactly flattering to be compared to AOL, Yahoo, or Twitter, all of which make billions in ad revenue but pale in comparison to Facebook and Google. For example, Yahoo made around $5 billion (£4 billion) from advertising in 2016, compared with Facebook's $27 billion (£21.8 billion).
Snapchatters don't like ads
The bank surveyed more than 1,000 Snapchat users to find out how often they use the app and, importantly, how often they click on ads.
The analysts found that 64% said they "hardly ever" click on a Snapchat ad, and only 6% find the ads interesting.
On the plus side, people still really love using Snapchat. Almost 80% use Snapchat more than twice a day, and about a fifth of hardcore users open it more than 15 times a day.
The analysts wrote: "In our view, Snap will need to materially improve its advertising targeting and ad quality to increase ad loads without diminishing the user experience."
They also said Snapchat needed to make its ads more interesting for users.
Snapchat really needs those users
Snapchat is hugely popular at 161 million daily active users, according to its S-1 filing. But that number needs to grow if the company's ever to turn a profit.
Doshi and Phan said they were optimistic, and predicted the company would reach 261 million daily active users by 2021. They also thought the company would start to turn a profit before tax by 2019.
Two major worries in terms of growing those user numbers are "limited appeal" in emerging markets, and competition from WhatsApp, Instagram, and a host other social and messaging apps.
"Because Snapchat is heavy on videos and images, the service may not attract broad appeal in many emerging markets due to the cost of high-end smartphones and data plans, limited wireless or Wi-Fi broadband availability," the analysts wrote.
"At the heart of Snapchat is a messaging app, and the company faces very stiff competition in that segment based on our assessment. In the US, it competes for users and time spent across Google (including YouTube), Facebook (including Instagram, Messenger and WhatsApp), Twitter, AOL and Yahoo. Abroad, the company competes with Tencent (WeChat), Weibo, Line, Kakao Talk, Snow, and others."
An analyst note sent on Wednesday questioned Snap Inc's valuation, saying the numbers didn't add up.
Join the conversation about this story »
NOW WATCH: Tesla will begin selling its Solar Roof this year — here's everything you need to know