Underwriters Nailed Snap's Market Valuation Perfectly

Snap Inc SNAP shares plummeted to within 41 cents of their IPO price on Thursday after the company reported its first-ever quarterly earnings report as a public company. The 20 percent selloff suggests Snap’s Wall Street IPO underwriters may have nailed the company’s valuation.

Snap’s team of underwriters, led by Morgan Stanley and Goldman Sachs, initially told investors they were anticipating IPO shares to price in the $17-$18 range, a bit higher than the company’s anticipated range of $14-16. The underwriters eventually settled on a price of $17. In the days following its first day on the market, Snap shares surged as high as $29.44. However, when the company’s Q1 earnings report did little to reassure investors concerned about slowing user growth and monetization, the stock ended right back in the underwriters’ initial valuation range of $17-18.

Goldman analyst Heath Terry wrote a new note on Thursday, likely in an attempt to reassure concerned IPO investors.

“While SNAP remains a near venture stage investment with all of the risks that implies, we continue to believe its audience and engagement represent a unique asset that will benefit from growth and diversification of internet usage and advertiser adoption as both mature,” Terry said, reiterating his $27 price target for the stock.

Related Link: Citi Maintains Buy On Snap, Says Important Metrics Are On Track

For traders, the $17-18 level could be an important support level and potential entry point. The fact that an all-star team on investment bank underwriters settled on $17 as an IPO price could provide some psychological support for the stock. If, however, Snap’s negative momentum carries over in coming days and the stock dips below $17, the company’s initial valuation range of $14-16 could be the next possible region of support.

Joel Elconin contributed to this article.