Investors love Snapchat, but Wall Street analysts won't give it a single 'buy' rating

Evan SpiegelGetty/Michael KovacSnapchat CEO Evan Spiegel speaks onstage during ‘Disrupting Information and Communication’ at the Vanity Fair New Establishment Summit at Yerba Buena Center for the Arts on October 8, 2014 in San Francisco, California.

Investors are still going nuts for Snapchat, even though it doesn’t seem Snap has a single “buy” rating from analysts.

After Snap’s IPO on Thursday, the stock jumped 44% in a day and has continued to climb, moving up another ~5% on Monday morning.

But that doesn’t mean Wall Street analysts are loving it.

In fact, this morning Bespoke Investing Group noted that Snap is the only “US stock with a $US20+ billion mkt cap that has ZERO buy recommendations.”

CNBC put together a short list of analysts that have weighed in so far, and it includes five sells and two holds:

  • Needham – Underperform (Sell)
  • Atlantic Equities – Underweight (Sell)
  • Morningstar – Sell
  • Aegis – Hold
  • Susquehanna – Hold
  • Nomura Instinet – Reduce (Sell)
  • Pivotal Research – Sell

Why is everyone so wary?

Anthony DiClemente at Nomura Instinet has a good summary of the reasons to be sceptical. “Snap Inc. is becoming a public company just as its user growth and monetisation growth rates are beginning to meaningfully slow,” he wrote.

He wrote that upside in shares is limited by these four things:

  1. “Already slowing growth in daily active users (DAUs).”

  2. “Slowing monetisation (ARPU) growth.”
  3. “Fierce competition from larger rivals such as Facebook, Instagram,

    and WhatsApp.”

  4. “Rich valuation relative to current and future


In other words: buyer beware.

So how is Snap telling its investors it can make money, eventually? Indications are that Snap doesn’t expect to gain the gargantuan scale of Facebook, but rather create a premium product to wring out more money per user.

One big way Snap thinks it can do this is by grabbing TV ad budgets, a shared goal with digital giants like YouTube and Facebook. This money has been slow to move from TV to digital video, but Snap thinks it’s in the best position when that accelerates. That’s because Snap considers Snapchat ads already superior to those on television, and way better ads than other digital video competitors, according to the Snap S-1 filing.

See our full explanation of Snap’s argument here.

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