Almost five months removed from its IPO and down 12% in the meantime, it’s not a stretch to call Snap Inc (NYSE:SNAP) a disappointment. Still, the stock has its fans. Despite the pullback SNAP stock has dished out since it went public and with the echoes of its poor Q2 report still ringing, analysts collectively rate the stock somewhere between a “Buy” and a “Hold.”
They also suggest it’s worth $19.88 per share. For perspective, SNAP stock is presently trading at $14.89.
Maybe it will end up getting there sooner or later. Just for the record though, it would be shocking if the stock didn’t move much, much lower before fighting its way back to that lofty target.
That setback could start to unfurl within the next few days.
SNAP Stock: It’s Time to Buckle Up
You know the company, even if you don’t know you know the company. Snap Inc. is the parent company of online messaging app Snapchat … the young company that allows users to superimpose digital pictures and embellishments on their picture before sending them to others. It’s also the same company Facebook Inc (NASDAQ:FB) has essentially copied every step of the way, usually beating Snap/Snapchat at its own game.
It’s not the ongoing rivalry with Facebook that should concern SNAP stock holders right now though. Most concerning here is the looming introduction of a huge swath of shares that are about to become free-trading stock that should haunt current and prospective owners.
As of the latest tally, there are 682 million shares of Snapchat outstanding. That’s not the number of shares that are in the float — that figure is 378.5 million. Note those are the most recent reported figures and could have changed in the meantime. They shouldn’t have changed a whole lot though.
Either way, both are about to get bigger. As of July 31, up to another 400 million shares become free-trading. Then on Aug. 14, yet-another 782 million shares of SNAP stock will be newly-eligible to be sold. JPMorgan analyst Doug Anmuth has crunched the numbers, and says the number of Snap shares in the public-trading float is on the verge of swelling from 13% of its potential to a whopping 97% of its potential.
That’s a lot.
Wall Street’s View Isn’t Unanimous
It remains to be seen to what extent those investors will be interested in actually shedding those shares. It stands to reason though — in light of the lack of progress the stock has already delivered — a wide swath of those owners will be looking to cash out at a decent price while they can, before things get any worse.
And more than a few analysts see that happening.
While the average price target on SNAP stock is currently just a tad under $19, that average is based on a wide span of targets ranging from $9 to $31. Although they’re both still technically bullish in the sense that their price targets for Snap are still above the current price, both Morgan Stanley and Cowen & Co. recently lowered their price targets as well as opinions of Snapchat parent Snap Inc. Each is concerned about slowing growth and marketability challenges.
It’s remarkable simply because Cowen as well as Morgan Stanley were both underwriters of the IPO, which generally includes (albeit an unspoken expectation) bullish lip service for at least a few more months than Snap got from either.
Bottom Line for SNAP Stock
There’s still a vestige of hope. That is, this past week, the bulls appear to have drawn a line in the sand at $14.68, not letting Snapchat shares sink below that mark despite a couple of efforts.
It’s a flimsy floor, however. Prior floors haven’t held up, even without the pressure of a huge injection of shares into the float. The introduction of a few hundred more million shares of SNAP stock over the course of the next two weeks can only hurt. A move below $14.68 will just open the selling floodgates.
While a move to the low-end target of $9 may be a bit of a stretch, a move well below $14.68 is a distinct possibility. Buy SNAP stock between now and mid-August at your own risk, because the deck is stacked against it.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
