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Stats: 340 members, 4,611 Topics. Date: January 22, 2018, 10:50 pm

Snap Stock Suffers First Major Selloff Since Going Public, Fell More Than 12% On Monday

TodayNewsReview / General / Business / Snap Stock Suffers First Major Selloff Since Going Public, Fell More Than 12% On Monday 267 Views

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The tide continues to shift on shares of Snap Inc. days after its splashy initial public offering.

Shares of Snap Inc. SNAP, -12.26% fell more than 12% on Monday, reversing two straight sessions of upswings since its market debut. The selloff followed two more bearish initiations on Wall Street, adding to several others that have emerged in the past few days claiming the stock is overvalued.

Needham analyst Laura Martin initiated coverage on the stock with an underperform rating, which is the equivalent of sell, and a fair value price target range of $19 to $23 a share. She expressed concern that Snap stock could suffer through at least 2019, plagued by decelerating user growth and huge losses that could weigh on its fair value even if sales increase.

Snap stock closed at $27.09 on Friday after pricing in its market debut at $17 the day earlier. It ended at $23.77 on Monday.

In a note to clients that went out Monday morning, Needham’s Martin referred to Snap as a “lottery-like stock,” which at first glance may look like a good buy. However, closer scrutiny of its fundamentals reveal a different story plagued with risks, she said.

Among those risks is slowing user growth, which is exacerbated by the fact that Snapchat has a total addressable market that is 80% smaller than Facebook Inc.’s FB, +0.18% according to Needham’s calculations.

Facebook, which recently rolled out a Snapchat-like ephemeral photo-sharing service called Instagram Stories, offered to buy Snapchat in 2013 for $3 billion. Its rival Snapchat service, launched this past summer, has been credited for a deceleration in Snapchat’s user base.

Snapchat’s revenue growth might also be an issue. The company reported revenue of $463.1 million last year, up sharply from just $58.6 million in 2015 as it continued to increase its ad load. However, Needham’s 2017 revenue target of $3.3 billion for 2019 would require the company to have a 14% to 16% share of adjusted mobile or digital ad spending, while it had just a 2% share in 2016.

Even if Snap does grow revenue by eightfold to meet that target, its share price could still decline when taking into account the enterprise value/sales ratios of digital-advertising leaders Facebook and Alphabet Inc. GOOGL, -0.21% GOOG, -0.16% said Martin.

Needham also believes there’s “no clear path to profitability before 2020.” Last year, Snap reported a loss of $514.6 million, compared with $372.9 million in 2015, which stemmed from higher costs of revenue.

Snapchat, which has been referring to itself as a camera company in an effort to distance itself from its social media peers, was joined in Monday’s sea of red by GoPro Inc. GPRO, -7.92% . Shares of GoPro, a camera company that often refers to itself as a media company, closed down 7.9% to $8.14 following a downgrade from Goldman Sachs.


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