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Wall Street Analysts Throw Up On Snapchat IPO Euphoria

Friday, March 3, 2017 7:27
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When it comes to sellside opinions about yesterday’s SNAP IPO, there are two camps: those from analysts who belonged to the underwriting syndicate, which for obvious reasons (Goldman and Morgan Stanley were both paid over $20 million for their underwriting efforts) have been broadly positive about the public offering… and those from everyone else. And as a quick skim of opinions from those analysts who were not part of the Snap underwriting group, reveals, virtually all were quick to  throw up the euphoria behind the IPO in notes released overnight, calling the stock price “unsustainable” as a long-term investment. Meanwhile, firms that helped take the company  public this week have yet to initiate research coverage. Among the biggest IPOs in recent years, Snap’s first-day pop was the largest other than Twitter.

Below, courtesy of Bloomberg, is a summary of select sellside report SNAP excerpts:

Susquehanna (Shyam Patil)

  • Euphoria could cause short-term disconnect between fundamentals and valuation; “longer-term we struggle to see SNAP as an investment with meaningful upside potential from current levels”
  • Current price of $24 could leave room for near-term upside potential given heightened level of interest; stock could reach high $20s to low $30s
  • Neutral, PT $22

Atlantic Equities (James Cordwell)

  • Trading at a premium to Facebook after normalizing for engagement levels; valuation unsustainable given unproven monetization potential, lower profitability, likely challenges in materially reaccelerating user growth
  • $24/share values stock at 15% premium to Facebook on EV-to- time spent basis; effectively implies Snap will be able to better monetize its engagement than FB
  • Downgrades to underweight from neutral, PT $14

Aegis (Victor Anthony)

  • Snap trades at 31.7x Aegis’ 2017 sales est. vs 9.8x for Facebook and 4.0x for Twitter
  • Bull-case model sees fair value of $34, bear case points to $12
  • Hold, PT $22

Nomura Instinet (Anthony Diclemente)

  • Already-slowing growth in daily active users, monetization limit Snap’s upside
  • Also cites fierce competition from larger rivals, rich valuation; rev. opportunity constrained relative to expectations, shares fairly valued, at best, at the $17 IPO price
  • Reduce, PT $16

Pivotal (Brian Wieser)

  • Likely scale of long-term opportunity, execution risks, dilution from share-based compensation represent negatives
  • Promising early-stage company with significant opportunity ahead is “significantly overvalued”; risks include aggressive competition, core user base not growing by much, “sub-optimal” corporate structure, high expenses, cash costs
  • Sell, PT $10

Finally, for what it’s worth, CNBC parent Comcast announced the NBC Universal had invested $500 million into SNAP as part of its IPO.

SNAP is higher in the pre-open (seemingly jumping after the NBCU headlines)


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