Snap shares fall for second day

Allan Goodman
March 8, 2017

The Snap listing is of interest not only because its Snapchat app has been enthusiastically embraced by social media addicts in the region, with the UAE and Saudi Arabia ranked among the fastest-growing markets for the product worldwide.

Wall Street banks made about $85 million in fees on Snap 's giant IPO, with Morgan Stanley and Goldman Sachs taking the lion's share. But they fell just below $24 - Snap's initial trading price - when the session ended. The bulk of Snap's $400 million in revenue previous year came from selling ads that appear on the Snapchat app, and ads are expected to be the main revenue driver for the foreseeable future. Most have given Snap a "sell" or "hold" rating. To maintain competitiveness, Snap expects to spend even more in the next five years on Google Cloud, allocating $2 billion for that alone.

In a controversial move, investors have not been given any say in the company's future, as voting rights have been retained by the company. But it was able to recover and at $137 a share, is now up 360 percent from its $38 IPO price, a rise analysts credit to its large global user base and success with mobile advertising.

The newly issued stock declined 12.26% to close at $23.77, hovering under its opening day price of $24. The company's publicly traded Class-A shares come with no voting rights. After jumping 44% and 11% on their first and second trading days, respectively, Snap shares are now down about 8% as the market starts to sober up from the IPO hype.

That was half the user growth in the final quarter of 2015.

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While Martin noted that "sometimes lottery tickets do pay off", she detailed a litany of risks, including that Snap has "no clear path to profitability before 2020".

"Ultimately, Snap's competition, which includes wide-moat Facebook with almost 2 billion users, is overwhelming, in our view". "We feel that we are really at the beginning of what are cameras are capable to do, to evolve from being just a piece of hardware with software that connects to the Internet", said CEO of Snap. "We see strong user engagement, but user growth that has decelerated", he said, in a note to investors. Tech analysts Laura Martin and Dan Medina of Needham wrote in a note that Snapchat's total potential market is 80 percent smaller than Facebook - SNAP already has 50 percent penetration of this market, meaning there's not a whole lot of room left to grow.

User growth has slowed the most among millennials.

Traders work on the floor during the Snap Inc.

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