Snap Inc. shares fell below their initial public offering price amid questions about the company's ability to grow as fast as initially expected and after wider declines recently in technology stocks worldwide.
The stock fell 1.3 per cent to US$16.95 at 3:59 p.m. in New York, below the US$17 IPO price set March 1. To regain value, the company will need to prove that its advertisements are a must-buy, not just an experiment, and will need to keep innovating on its product as Facebook copies its most popular features, analysts have said.
"The pace of growth in monetization may not be as fast as we originally modeled," Mark May, an analyst at Citigroup Inc., said in a note downgrading the stock last month. "We expect user growth will remain modest near-term."
Many large technology stocks, including Facebook, Apple Inc., Nvidia Corp. and Microsoft Corp., declined in the past month after analysts began raising red flags on some of the high valuations.
In its IPO, Venice, California-based Snap drew investors who were enthusiastic about a company popular with young people for sending fun photo and video messages that disappear, and it was intriguing to advertisers who want to reach that elusive audience. But in May, Snap reported earnings and growth in daily active users, or DAUs, that missed analyst estimates, casting doubt over its ability to live up to its more than US$20 billion valuation.
About 35 per cent of analysts following Snap recommend buying the stock, according to data compiled by Bloomberg. And there could be an additional catalyst to drive the shares down further: On July 30, insiders who had their shares in a lockup after the IPO will start to be able to sell them.
"With market fears running rampant around Snap's DAU growth, the lock-up expirations this summer and increased competition from Facebook, sentiment around Snap remains at ghastly levels," Brian White, a Drexel Hamilton LLC analyst, wrote in a June 29 note.
On Snap's first day of trading on March 2, the stock climbed 44 per cent to US$24.48. The next day, an additional 11 per cent climb brought the shares to their all-time high of US$27.09. The positive performance was said to ignite interest from other private companies in holding their own public offerings, after many months of IPO drought.
The enthusiasm didn't last. While the first six months of the year saw a jump in U.S. tech IPOs from 2016, there is more concern looming over Snap's listing than its peers. Of the 14 stocks that went public in 2017 through June 8, Snap's shares were the most-shorted as traders bet the stock will fall.