Analyst slaps $10 target, sell rating on Snap
SAN FRANCISCO — Snap surged in its debut Thursday, with shares popping after opening for trading at $24.
But one prominent Internet analyst is throwing cold water worthy of the Ice Bucket Challenge on the newly-minted public company.
Pivotal Research Group's Brian Wieser slapped a "sell" rating on the stock and put his price target at $10.
It wasn't all bad. On the plus side for Snap?
"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," Wieser wrote. "Snap also offers investors a share of the significant economic potential that should follow from Snap’s ongoing business expansion."
Topping the list of negatives: Snap is facing "aggressive" competition from tech giants such as Facebook. Its core user base is not growing much. It has a promising advertising offering, but, says Wieser, it's "mostly unproven and difficult to quantify its ultimate scale."
To boot, Snap has a "sub-optimal corporate structure operated by a senior management team lacking experience transforming a successful new product into a successful company."
Steep expenses and cash costs to run the company round out the negatives, especially when shareholders will be diluted by "aggressive share issuances to employees and through the lack of voting rights that they will possess," Wieser says.
"Snap is a promising early stage company with significant opportunity ahead of itself. Unfortunately, it is significantly overvalued given the likely scale of its long-term opportunity and the risks associated with executing against that opportunity," Wieser wrote in a research note.
Bottom line: "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," Wieser concluded.
Ouch.
Instinet analyst Anthony DiClemente also initiated coverage with a sell rating and a $16 price target on Thursday.
"Snap Inc. is becoming a public company just as its user growth and monetization growth rates are beginning to meaningfully slow," DiClemente wrote. "We believe that upside in shares is limited by 1) already slowing growth in daily active users (DAUs); 2) slowing monetization (ARPU) growth; 3) fierce competition from larger rivals such as Facebook, Instagram, and WhatsApp; and 4) rich valuation relative to current and future growth."