The hottest initial public offering of 2017 came roaring out of the gate when shares of Snap Inc (ticker: SNAP) stock surged as high as $27.09 in its first two days of trading this month.
However, reality is settling in with investors for Snap, which is best known for its Snapchat app.
Cantor Fitzgerald analyst Youssef Squali says the Snap reality check will likely continue throughout the year. Squali recently joined the Snap skeptics by initiating coverage of the stock at “underweight” and setting a price target of $18.
According to Squali, there are simply too many unknowns when it comes to Snap’s valuation.
In addition to Snap’s rich valuation, he says the company’s experimental advertising model, inexperienced management team and intensely competitive market environment will make success an uphill climb.
Perhaps the most concerning metric of all is Snapchat’s growth deceleration in 2016, thanks in part from hefty competition from Instagram Stories launched by Facebook ( FB).
[See: 7 of the Best Stocks to Buy for 2017.]
Snap will need to demonstrate that the growth deceleration was simply a short-term setback and not the beginning of a negative trend. Growth deceleration has plagued social media rival Twitter ( TWTR) and its shareholders ever since the company went public in 2013.
“Sequential [daily active user] and monetization growth throughout 2017 will be key in determining the growth curve of Snapchat and whether it’s more likely to mimic Facebook in its user/advertiser appeal or Twitter,” he says.
While Twitter shares are now trading well below their IPO price, Facebook shares are up more than 260 percent from the stock’s 2012 IPO price of $38.
[See: 7 Best Tech Stocks to Buy for 2017.]
History is not on Snap’s side in the year ahead. Eight of the 10 largest technology IPOs have delivered negative returns of between 25 and 71 percent in their first year of trading on the public market. Even Facebook shares dropped roughly 30 percent in the year following its first day of trading.
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Snap Inc Stock (SNAP) Crashes Back to Earth originally appeared on usnews.com
