May 24, 2017 Last Updated 13:34 PM EDT

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Snapchat parent company's IPO gains just disappeared

Mar 08, 2017 08:54 AM EST

Snapchat post IPO gains just disappeared
(Photo : Getty Images) Analysts are concerned over Snapchat's sudden growth, valuation and hype for the past weeks and claim its IPO gains as overpriced.

Snapchat reported more than 12 percent in trading on Monday and ended with $23.77 per share. The result has placed the fresh messaging app company below its first-day opening price of $24.

Not long after Snapchat's impressive Wall Street debut, earlier this week, the company showed a quick drop in its stocks. During the company's first day of trading, last Thursday, Snapchat climbed 44 percent above its IPO price of $17 per share. On the next day, Snapchat soared another 11 percent amidst demands from its investors.

The social media outlet's user growth, valuation and hype caused quite a stir between investors and the public. However, analysts have posed significant concerns over the popularity of Snapchat for the past weeks. "The sexier and more glamorous a company's IPO, the more likely it is to be overpriced at its IPO date," Laura Martin, an analyst with Needham, wrote in an investor note about Snapchat on Monday.

 

Martin described the flashy messaging service as a lottery-like stock. Just like in a lottery, taking risks do pay off but understanding Snapchat's business would suggest otherwise. A research analyst compared the company's soaring stock and valuation after its IPO in 2013. "At some point, the stock has to collide with the fundamentals," James Cordwell told CNNTech on Friday. Cordwell is referring to Snap's actual business growth.

 

 

"I guess that will start moving to the front of investors' minds as we move toward the company's first earnings report," he said. Another analyst at Pivotal Research Group noted Snapchat earnings as overvalued. Normally the value for Snapchat per share only amounts to $10 but it valued $7 more. Although its valuation continues to rise, Snapchat saw a decline in user growth late last year when its rival Facebook launched a similar Snapchat feature on Instagram.

 

The millennial-serving social media company only began making money two years ago and is still struggling to make a profit. Reports showed that Snapchat suffered $373 million losses in 2015 and another $515 million losses in 2016. 

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