×
You will be redirected back to your article in seconds

Snapchat Parent’s Shares Fall as Analysts Say It’s Ridiculously Overvalued

Shares of Snap fell 12% Monday on the Snapchat parent’s third day of public trading, after opening up 4%.

The pullback indicates profit-taking after investor gusto for Snap led to a huge run-up in the two days following its IPO on March 2. It also comes after Wall Street analysts warned that Snap shares are drastically overvalued, with none so far having issued a “buy” rating on the stock.

Snap shares were trading around $25.11 per share Monday at 11:15 a.m. ET, down from the Friday closing price of $27.09 but still up 46% from the IPO price. At $25 per share the Venice, Calif.-based company has a market cap of about $29 billion, making it worth more than CBS, Viacom, Dish Network and Twitter at that price. That’s despite Snap posting a $515 million loss for 2016, and no profit expected on the near horizon.

[UPDATE, 4:15 p.m. ET: Snap shares closed down 12.3% Monday, to $23.77 per share. That’s below the $24.48 closing price on the day of its IPO, but still well over the $17-per-share initial public offering price.]

Of seven analysts who have initiated coverage of Snap, five have a “sell” or equivalent rating and two have a “hold,” CNBC reported. CFRA Research also initiated coverage Monday with a “sell” opinion.

Snap’s stock is “like a lottery ticket,” Needham & Co. analyst Laura Martin wrote in a note to clients Monday, rating the stock “underperform.” The firm estimates Snap Inc.’s value at $19 to $23 per share.

While Martin noted that “sometimes lottery tickets do pay off,” she detailed a litany of risks, including that Snap has “no clear path to profitability before 2020.” She also estimated that Snap’s total address market in the 10 biggest ad markets is about 650 million — one-fifth the size of Facebook’s — because Snapchat targets a 13-34 demo and requires high-end devices. In addition, she noted that “fast follower” competitors (like Facebook’s Instagram) are copying its best ideas, and that Snap is controlled by its two founders, CEO Evan Spiegel and CTO Bobby Murphy (new shareholders have no voting rights).

“Academic literature suggests that the sexier and more glamorous a company’s IPO, the more likely it is to be overpriced at its IPO date and to suffer meaningful downwards earnings and valuation revisions in the first eight quarters after it goes public,” Martin wrote.

CFRA equity analyst Scott Kessler set a 12-month price target on the stock of $22 per share. “We see strong user engagement, but user growth that has decelerated,” he wrote. Kessler predicts Snap’s revenue gains will outpace rivals, but he said the company faces risks as it “transitions from more of niche product to a mass-media offering,” which will require it to “notably increase its size/scale.”

Last week, Pivotal Research analyst Brian Wieser initiated coverage of Snap with a “sell” rating, valuing the company at $10 per share based on financial estimates for 2017. “Investors in Snap will be exposed to an upstart facing aggressive competition from much larger companies, with a core user base that is not growing by much and which is only relatively elusive,” he wrote in a note.

Snap got a vote of confidence last Friday from NBCUniversal, which revealed that it had taken a $500 million stake in the disappearing-message and media company in the IPO. That helped lift Snap shares 11% for the day, after a 44% surge on Thursday.

More Digital

  • T-mobile - Netflix - John Legere

    T-Mobile Passes Netflix Price Hike Through to Subscribers

    T-Mobile is getting ready to raise prices for subscribers who have taken advantage of its “Netflix On Us” promotion: The mobile carrier will begin charging existing customers who have participated in the promotion an additional $2 per month to account for Netflix’s recent price increase. Consumers will see their bill go up starting on 6/2. [...]

  • Oona King

    Snap Hires Google Exec Oona King as First VP of Diversity and Inclusion

    Snap continues to fill out the ranks of its revamped leadership team: The Snapchat parent tapped Oona King, most recently Google’s director of diversity strategy and a former member of British Parliament with the Labour Party, as its first VP of diversity and inclusion. King, who starts at Snap on June 11, is also the [...]

  • Chrissy Teigen

    Chrissy Teigen to Rule Over Small-Claims 'Chrissy's Court' in Show for Jeffrey Katzenberg's Quibi

    Chrissy Teigen is going full-on “Judge Judy” in a reality show ordered by Quibi, the mobile-video subscription start-up venture founded by Jeffrey Katzenberg. In each episode of “Chrissy’s Court,” the model-influencer will reign as the “judge” over one small-claims case. Like the reality TV shows it’s patterned after, the plaintiffs, defendants, and disputes are real [...]

  • IGTV-Landscape

    Instagram's IGTV Adds Support for Horizontal Videos — but Still No Monetization

    Instagram is still searching to find the right recipe for IGTV, the long-form video service it debuted nearly a year ago. In the hopes of encouraging usage of IGTV, Instagram is breaking the original design that allowed only vertical video– to now support horizontally oriented videos as well. It’s a change that bows to the [...]

  • Facebook Logo

    Facebook Took Down 2.2 Billion Fake Accounts in Q1

    Facebook saw a huge jump of bots trying to create fake accounts during the first quarter, with the company revealing Thursday that it took down 2.19 billion such accounts over the first three months of this year. “We’ve seen a steep increase in the creation of abusive, fake accounts on Facebook in the last six [...]

  • Netflix Unveils Lonely Island Musical Tribute

    Netflix Unveils Lonely Island Musical Tribute to Jose Canseco, Mark McGwire

    The Lonely Island comedy troupe has dropped a half-hour Netflix special featuring a musical tribute to baseball greats Jose Canseco and Mark McGwire. “The Lonely Island Presents: The Unauthorized Bash Brothers Experience” features Andy Samberg and Akiva Schaffer as the former Oakland Athletics teammates who became known as “the Bash Brothers” for their prowess at [...]

  • Rotten Tomatoes

    Rotten Tomatoes Revamps Movie Audience Scores to Focus on Verified Ticket Buyers

    Rotten Tomatoes is dramatically changing its Audience Score methodology for movies: The site’s standard user rating will now reflect only moviegoers who can prove they’ve bought a ticket to see it in a theater. It’s another troll-fighting move by Rotten Tomatoes, designed to curb coordinated “review bombs” aimed at pushing down the Audience Score for [...]

More From Our Brands

Access exclusive content