In an event rarely seen on Wall Street, Morgan Stanley-the lead underwriter of the Snap Inc. IPO- downgraded shares of Snap on Tuesday July 11th, 2017. In the process of doing the lead underwriting, Morgan Stanley earned $26 million dollars in fees. The analyst that downgraded the stock lowered his rating from overweight to equal-weight and assigned a $16 price target.
Shares closed the day at $15.47 which was down $1.52 or 8.95%. The IPO price of the shares was $17 per share just so the reader has a reference point. This is in stark contrast with his price target and expected price appreciation of $40 per share shortly after the shares went public.
Shares, which opened at $17, popped hard hitting a record high on the first day of trading up 44%and closed at $29.44 the day after. It has never seen that $29.44 sense. It is the largest IPO since Facebook of 2012 and it’s technology industry.
One interesting note of importance, is that by the end of July some 60% ( 711 million shares) of the outstanding shares will be available to be sold from the IPO lockout rules.
From past history, this tends to put an exorbitant amount of pressure on the share’s price. Many traders who follow the social media stocks will be watching this one closely to see if it finds any price support or bottom-fisher’s looking for a short-term rally.
Morgan, But Why ?
The analyst, Brian Nowak cited a few different areas of Snap’s business model which he feels are affecting the share price and forward-looking earnings. The main issue is their return on investment through their ads. It seems that their ad revenue is lower than Facebook’s Instagram.
In this area Facebook has been eating Snap’s lunch. This begets the problem of advertisers not wanting to spend additional revenues at Snap. And to add insult to injury some outside surveying companies have come back with data that show that user growth is currently stagnant. One such source is Sensor Tower.
