Will Snapchat Go The Way Of Facebook — Or Twitter?

While Snap Inc SNAP has more than 100 million daily users, it’s still an unproven startup, according to analysts at Cantor Fitzgerald.

The firm initiated Snap with an Underweight rating and $18 price target. Snap’s initial public offering on March 1 was priced at $17.

“Proving empirically that advertising on Snap works for marketers is paramount to the long-term success of the platform, and management has just begun this process,” Cantor Fitzgerald analysts said in a note.

The company’s valuation is “rich under most scenarios” and advertisers continue to generally view their spending on Snap advertising as “experimental,” the analysts said.

Valuation Isn't Justified

Snap must show advertisers that the platform gives a return on investment as good or better than that of Facebook Inc FB and its Instagram photo app, Twitter Inc TWTR and Alphabet Inc GOOGL-owned YouTube, the note said.

"It is unclear yet if user/[daily active user] growth will plot the course of a Facebook or tap out sooner with a more niche audience, like Twitter.”

The analysts weren’t entirely bearish, however: "...Running several growth scenarios for the company leads us to believe that Snap is likely to be successful in attracting large ad dollar budgets over time."

At the same time, even Facebook-like revenue growth rates at Snapchat would not justify the stock’s valuation, according to the note.

Every Social Platform Tells A Story

Snap faces intense competition in the social media sector, and is widely imitated. Just days after the company’s IPO, Facebook launched “Messenger Day”, a Snap story-esque feature.

The move follows the earlier addition of Facebook features geared to compete with Snap, and the addition of disappearing photo and video stories on Instagram last August.