The Bearish First Wave Of Ratings, Price Targets For Snap Post-IPO

Shares of Snap Inc SNAP fell more than 5 percent on Monday as the newly issued IPO isn't receiving the same amount of love from Wall Street as it is from investors.

Within hours of Snap's initial trading on the New York Stock Exchange, Pivotal Research Group's Brian Wieser was first to publish a research report on the social media company. The analyst initiated coverage of Snap with a Sell rating and $10 price target based mostly on the analyst's belief that the stock is already "more than robust" when factoring in his long-term revenue estimate of $7 billion by 2023.

The analyst also cited Snap's "sub-optimal" corporate structure and a management team that lacks the necessary experience in transforming a new product into a successful company.

Atlantic Equities Joins The Bear Crowd

One day later, Atlantic Equities' James Cordwell slapped an Underweight rating on Snap's stock with a $14 price target. The analyst cited Snap's hefty valuation which at $24 per share is trading at a premium to Facebook Inc FB.

Cordwell argued that Snap won't be better than Facebook in terms of monetization given its less extensive user data and that a premium multiple isn't justified.

3 Is A Crowd

On Monday, analysts at Needham initiated coverage of Snap with an Underperform rating and labeled the stock as a "lottery" — sometimes a gamble pays off, but more often than not it doesn't.

Needham's Laura Martin highlighted six reasons for a bearish rating:

1. Snap's total addressable market is 80 percent smaller than Facebook's.
2. Snap's penetration in its market already stands at 50 percent.
3. A 2019 revenue estimate of $3.3 billion requires Snap to control a 14–16 percent share of mobile ad spend (versus 2 percent in 2016).
4. Even if Snap does gain a 16-percent market share the stock won't be attractive on an EV/Sales ratio.
5. Snap has no clear path toward profitability until at least 2020.
6. Based on history the company is in store for a poor first-year performance.

Susquehanna Makes It A Party

Analysts at Susquehanna initiated coverage of Snap with a Neutral rating and $22 price target. Granted, the analysts, led by Shyam Patil, don't see as much downside in the stock versus other Wall Street firms, the price target nevertheless implies investors who buy Snap's stock Monday are likely to lose money over time.

According to Business Insider, Patil argued that while Snap could benefit from an "undeniably large" total addressable market, it needs to battle it out with the much larger Facebook to win share. In fact, Facebook's "Snapchat-like product introductions" (such as Instagram/Stories) is already hurting Snap based on its daily active user net adds in the bottom half of 2016, which "decline precipitously."

In fact, Facebook's blitz puts Snap's international growth story "in jeopardy."

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