Snap Inc., the parent company of Snapchat, debuted on the Wall Street on Thursday, with shares popping after opening for trading at $24. As soon as they made their trading debut, they got a “sell” rating.
Opening at $24, a 41 percent increase from their IPO (Initial Public Offering) price set at $17 for each share.
However, the analyst at Pivotal Research Group, Brian Wieser slapped a price target of only $10 on Snap’s stock, a 58 percent lower than its initial opening price. He has placed a “Sell” rating on the stock.
Weiser wrote on Thu, “Snap presents investors with the opportunity to invest in the company behind an innovative, large-scale, and distinctively young-skewing platform which is establishing itself as a magnet for business unit talent and content partners alike,” And also “It grants investors a share of the significant economic potential that should follow from Snap’s ongoing business expansion.”
Weiser is also worried about the equity dilution that is bound to occur when Snapchat releases more shares to its employees.
Snap is facing belligerent struggle from tech giants such as Twitter and Facebook. The core user base is not that great, although it has a favorable publicity offering, however, Wieser says, it remains unproven and not likely to quantify their ultimate aim.
One thing that Snap has is the size of their audience when compared to individual Television assets like Comedy Central and MTV, which also attracts millennial.
Unlike Television, Snap would be dependent on a new advertising platform, and they would need to hire new talents to develop fruitful campaigns for promoting the firm. The extra cost for hiring and creativity would be a huge obstacle for the company.
Weiser also said Snap has an insignificant corporate organization that is managed by a team of senior management lacking any proper experience to transform a successful product into a developing new successful company.
He further said, due to sudden overheads to run the company round out the negatives, particularly when stakeholders will be diluted by “aggressive share issuances to employees and through the lack of voting rights that they will possess.”
He concluded by saying, “While we consider ourselves cautious optimists on the business itself, our model feels potentially ‘stretched’ in even getting to $10 per share or a $16 billion valuation.”
Snap is a promising company that is in its early stages and has substantial opportunities ahead; unfortunately, it is valued too high given the scale of its long-term prospects and the risks associated with executing against those prospects.