Snap Soars In Trading Debut As Analysts Urge Caution

With Snapchat parent company Snap Inc. (SNAP) soaring in its public debut on the New York Stock Exchange, several research firms urged traders to exercise caution on the stock, warning of significant risk as the company’s young management team faces off against Facebook (FB) and other giants in the space.

PIVOTAL SETS $10 TARGET: Pivotal Research’s Brian Wieser initiated coverage of Snap Inc. with a sell rating and $10 price target, arguing that the “promising early stage company with significant opportunity” is nevertheless “significantly overvalued given the likely scale of its long-term opportunity and the risks associated with executing against that opportunity.” Snap faces “aggressive” competition from much bigger companies even as its core user base “is not growing by much,” Wieser contends, adding that Snap’s advertising business is “still mostly unproven and difficult to quantify.” The analyst also highlights the company’s “sub-optimal corporate structure operated by a senior management team lacking experience,” leading Wieser to caution that his valuation model feels potentially stretched to even reach $10 per share.

AEGIS CAPITAL COMES OUT NEUTRAL: Aegis Capital’s Victor Anthony initiated Snap Inc. with a neutral rating and $22 target, offering an eight-point cautionary thesis on the stock. The analyst cites slow user growth and “no growth” in certain regions; the apparent ease with which Facebook has replicated key Snapchat features; Snap’s lack of an ecosystem; an ad mix “heavily weighted” toward brand rather than direct response products; “inferior” ad targeting relative to Facebook and Google (GOOG), as well as seemingly weaker analytics; many advertisers viewing their Snapchat spending as experimental; the lack of “clearly defined” steps to profitability; and corporate governance concerns, with investors receiving no voting power. All that said, the analyst’s “extensive” checks among marketers found them “enthusiastic” about the chance to get in front of Snap’s “coveted” demographic.