Snap shares fell in Monday trading less than a week following its highly anticipated IPO.
Snapchat Shares Fall More Than 12% Days After Massive IPO
Snapchat parent company, Snap, counted losses at the close of the trading session on Monday when its stock prices ended the day at $23.77 a share, slightly lower than its first day opening price of $24.
Following the Wall Street IPO, the stock climbed 44% from its initial price of $17 and climbed further by 11% on Friday as investors demanded for shares of the relatively new social media service.
However, there have been growing concerns among analysts who have cited Snap’s declining user growth.
In an investor note on Monday, Laura Martin a Needham analyst wrote, “The sexier and more glamorous a company’s IPO is, the likelier it is to be overpriced on its IPO date.”
Martin said Snap was like a lottery stock explaining that, “Sometimes lottery tickets do pay off.” However, a close look at Snap’s business continues to raise concerns.
James Cordwell, an Atlantic Equities research analyst compared Snap and Twitter IPO.
He pointed out that, “At some point, the stock will collide with the basics.”
Cordwell added, in reference to Snap’ business, “I guess that will start moving to the front of investors’ minds heading toward the company’s first earnings report.”
Another analyst, Brian Wieser of the Pivotal Research Group indicated in an investor note on Thursday that they would place the value of Snap at $10 per share.
Toward the end of last year, Snapchat saw a decline in its user growth after Facebook-owned instagram launched ‘Stories,’ a feature copied from Snapchat.
Snap only started to generate revenues two years ago and the young company is struggling to make a profit. In 2016, the company incurred losses of $515 million in 2016, an increase from the losses made a year earlier at $373 million.
Given that the company’s two young founders will retain voting control, investors will not have any say in the operations of the company.
Analysts cite concerns such as a declining user base, fierce competition and Snap’s short track record as some of the factors that make the IPO overvalued.
Ali Mogharabi, an analyst at the Morningstar said a fairer price would be $15 a share.
When Snap officially filed for its IPO last month, it said that it “may never achieve or maintain profitability”, which is something other tech companies such as Etsy and Twitter also admitted.
Even then, Snap stock’s early performance may not offer a clear picture for its performance in the long term.
Facebook stock prices fell by over 40 percent in the four months after its IPO but prices have since recovered to trade at $137 a share from its IPO price of $38. This stellar performance has largely been attributed to Facebook’s success with mobile advertising.
With regard to Snap, Mogharabi added, “It’s tough to tell…the valuation of the stock certainly shows a lot of hopefulness.”