The stock market has been on fire in 2018. In the first trading week of the new year, the Dow Jones Industrial Average rose 2.3%, the S&P 500 rose 2.6%, and the Nasdaq-100 rose 4%. That marks the best start to a year for the Dow Jones and Nasdaq since 2006.

From this perspective, if a stock is down so far in 2018, something is terribly wrong with the growth narrative of that stock. Not surprisingly, Snap Inc (NYSE:SNAP) is down in 2018. And it’s not just down, its down big. Snap stock has fallen 6.5% in 2018.

Why? Wall Street was grown increasingly bullish on Snap stock in the new year.

First, investment firm Cowen downgraded the stock based on the results of its ad buyer survey, which essentially showed that Snap is having a tough time maintaining ad relevance among other social media players.

Second, Jefferies swooped in with a downgrade, saying that the stock got ahead of itself at $15. Analysts at Jefferies cited a full valuation, execution risks, and forthcoming potential engagement headwinds with the app redesign.

Overall, Snap stock has tumbled from above $15 to below $14 in a matter of days. Is the selloff overdone? Are the analysts downgrades unfounded?

No and no. Here’s why.

Snap Stock Will Have a Tough 2018

After a rough 2017, the outlook for Snap stock in 2018 isn’t that much better. The stock still faces multiple headwinds that will ultimately cause shares to fall.

Firstly, Cowen’s ad buyer survey confirms the bear thesis that Snap will continue to struggle in the over-crowded, over-saturated social media advertising space.

Snap offers nothing unique to advertisers. The platform doesn’t have a demographic advantage (essentially all of the near 200 million people who use Snapchat on a daily basis also use Instagram and Instagram Stories on a daily basis). It doesn’t have a reach advantage (Instagram Stories and WhatsApp Status both have nearly twice as many daily users as Snapchat). And Snap doesn’t offer any other advantages in terms of ad success (it ranked last across the board in Cowen’s survey in terms of return on investment, targeting, and data, and analytics and measurement).

Why would advertisers put their money to work on Snap? For diversification purposes, sure, but the current outlook is that they won’t budget many more dollars to Snap over the next several years. Snap’s social media ad share is expected to increase one percentage point into 2019, versus a 5 percentage point increase for Instagram, according to Cowen.

With Instagram stealing Snap’s thunder in the digital ad world, it is very likely that Snap’s average revenue per user growth decelerates dramatically over the next several years. Increased competition from Amazon.com, Inc. (NASDAQ:AMZN) doesn’t help here, either.

Secondly, Snap doesn’t have much more room to run in terms of user growth.

Bears have correctly pointed out that user growth is slowing at an alarming rate for Snap. The reason for this big growth slowdown despite the relatively small base is that Snapchat doesn’t appeal to a broad audience. Its niche. Its intended for the 30-and-under demographic. Granted, it reaps huge engagement in that demographic, but the addressable market is actually rather small.

Snap has already reached 70 percent penetration in the 13-to-34 demographic in the US, UK, France and Australia. What happens when those users grow up? My bet is that they transition to Instagram, given its more professional design and user interface as well as its wider reach and integration with Facebook Inc (NASDAQ:FB).

From this perspective, Snap’s user base won’t get much bigger. Yes, there is lots of growth to come in developing markets, but in developed markets, Snap is already at 70% capacity. The current, slow trend of roughly 5 to 8 million new users each quarter will likely persist.

Thirdly, Snap stock isn’t priced for slow user growth to continue. Nor is it priced for average revenue per growth to decelerate dramatically.

As nearly 13-times next year’s sales estimate (versus 10-times for the much more reliable FB), Snap is priced for big growth to continue.

But it won’t. User growth is maxing out. Unit revenue growth will come down dramatically over the next several years as Instagram continues to ramp and more competitors enter the digital ad space. So how will Snap’s growth rates trend?

Down. Same with SNAP stock.

Bottom Line on SNAP Stock

No reason to own it here and now. There is a tremendous lack of visibility as to where this company will be in a year. Its spending an arm and a leg to fuel top-line growth which is slowing rapidly.

That isn’t a good combination. Until Snap fixes its slowing growth problem, Snap stock will continue to be challenged by valuation.

As of this writing, Luke Lango was long FB and AMZN.