After stellar initial trading days, shares of Snap Inc, parent company of popular photo messaging service Snapchat, which has just recently gone public, plummeted more than 12 percent on its third trading day, downturning its previous market upswings.
Snap Shares Tumble
When it debuted on the stock market on Thursday, March 2, it immediately saw substantial gains during the first couple of days. The excitement however, has apparently worn off. Snap closed $23.77 on Monday, just a little beneath its $24 per share on the first trading day.
Laura Martin, a Needham analyst, initiated coverage on the stock with an underperform rating, according to MarketWatch. She was concerned with Snap suffering with its stock through at least 2019, with the company bogged by several factors, such as daily active users on a decline, and losses that could latch down on its fair value even if sales increase.
Martin said that a company with a more "glamorous" IPO is more likely to be overpriced at its IPO date, prone to suffer significant downturns in terms of earnings and valuation revisions in the first eight quarters post-IPO.
Weighing Snap's Impending Achilles Heel, Or Two
Though there was a huge demand for Snap's shares, rendering it the largest IPO since Alibaba's in 2014, none of the seven analyst covering Snap rate it as a "Buy," according to Business Insider. These analysts warned about mounting competition from Facebook, which recently embellished its services with features akin to Snapchat's; Twitter, and slow user growth.
According to TechCrunch's report, Snap is currently considered to be worth more than some companies, including American Airlines, Hershey, and Hilton Hotels, with its steep market cap. In light of its stock waning down on the third trading day, some investors are beginning to suspect if Snap's outperformance of big companies is warranted.
The IPO was considered a success, however, raising $3.4 billion for Snap. Strong investor interest even suggests that Snap could have potentially raised its IPO a little more higher and it could have resulted in raising more than $4 billion.
Despite the wane, Snap's initially successful IPO stands as a good sign for tech companies on the brink of going public. Many highly valued companies such as Airbnb and Uber have yet to hint on plans to officially mark their stock market debut.
As TechCrunch notes, many companies are apprehensive of going public because of the possibility that they could have a market cap that's lower than their last private round.
Will Snap Follow Facebook's Footsteps Or Twitter's?
Since its IPO, Facebook has done well, although its initial days weren't exactly frictionless. Twitter, on the other hand, is looking more like Snap each day, opening up to wondrous first trading days, followed by less-than-stellar results going forward.
Will Snap be more like Facebook, or will it mirror Twitter's footsteps? Time will tell.
It's important to note that it's still early to forecast Snap's market failure, and it's a definite possibility that it could pick up steam again at some point going forward. Its drop below $24, however, effectively erases gains for those who bought as the stock went public. Obviously, this may be fodder for testing investors' patience.