Snap’s stock has proved to be volatile ever since its initial public offering. The value of its stock has now fallen by over $9 since its first listing in March. Snap has faced a series of heavy slides that have made some investors twitchy and sceptical of the company’s future.
Today, the company’s shares fell by 1.35% to a trading value of $14.93. The slide means Snapchat is now worth around 38% less than its IPO price suggested. Analysts have warned that there could be a further plunge later this month when Snap employees are permitted to sell their shares for the first time. Company insiders will be able to trade freely from July 31.
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Over the past week, Snap’s major underwriters have significantly downgraded its stock value. The decision has further compounded the fears of increasingly wary investors. Morgan Stanley opened its announcement that it’s lowering its price target by 42% with the ominous words “we have been wrong.” It now lists a $16 target price for the stock but notes it could go as low as $7.
Morgan Stanley cited several major problems with Snapchat that are limiting the company’s growth. They mostly concern its poor advertising completion rates.
Advertisers are seeing a lower return on investment compared to other platforms, causing them to spend their marketing money elsewhere. In addition, Snap’s promised automated ad bidding platform has been delayed. It now isn’t expected until the end of the year, making ad procurement more difficult.
The underwriter also noted that Snapchat is facing significantly increased competition from its major rival, Facebook. The latter company has seen strong success in replicating headline Snapchat features in its own properties.
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In particular, Instagram’s implementation of “Stories” has proved to be a runaway hit with users. Instagram Stories alone now boasts a larger active user base than Snapchat’s entire app. Combined with Instagram’s broader demographic, it’s proving to be a more attractive option to advertisers. Facebook is well acquainted with selling ads and is repeatedly reminding advertisers they can access its entire portfolio of products with a single campaign.
In the near term, many analysts believe Snap’s stock is going to fall further into early August. The rush of sales expected on July 31 will push the price down but also make investment more accessible to hesitant traders. Overall, the stock is expected to recover to a more stable footing as investors get familiar with Snap and how it operates. The company has several weaknesses to address if it’s to remain an attractive investment opportunity though.
