Pivotal Research Initiates Sell on Snap Inc (SNAP); Sees 60% Downside for the Stock

Though Snap Inc (NYSE:SNAP) shares are vaulting nearly 49% after the popular Snapchat maker priced $17 per share, but opened at $24. Nonetheless, Pivotal Research analyst Brian Wieser is not swayed by investor thrill circling the social media company.

Highlighting a contentious, uphill battle ahead, though the analyst points to cautious optimism “on the business itself,” he is bearish on the company’s overall snapshot.   Therefore, the analyst initiated coverage on SNAP with a Sell rating and a price target of $10, which implies a potential downside of 60% from where the stock is currently trading.

On one hand, “Snap presents investors with the opportunity to invest in the company behind an innovative, large-scale, and distinctively young-skewing platform […],” says Wieser. Yet, the analyst continues on a less positive note that conversely, “[…] there are significant risks offsetting these opportunities.”

“Investors in Snap will be exposed to an upstart facing aggressive competition from much larger companies, with a core user base that is not growing by much and which is only relatively elusive. It has a promising and innovative advertising offering, but so far it is still mostly unproven and difficult to quantify its ultimate scale. Investors will also be exposed to what appears to be a sub-optimal corporate structure operated by a senior management team lacking experience transforming a successful new product into a successful company. High expenses and cash costs to run the company are negative as well. And then there are other negatives for shareholders given the degree to which they will be diluted through aggressive share issuances to employees and through the lack of voting rights that they will possess,” Wieser concludes.

According to the analyst’s model, he predicts by 2023, Snap will bring in $6.7 billion in revenue coupled with 30% adjusted EBITDA margins, which would match $2.0 billion. Big scheme, the analyst assesses the company to circle enterprise value of $16 billion.

According to TipRanks, which measures analysts’ and bloggers’ success rate based on how their calls perform, five-star analyst Brian Wieser is ranked #214 out of 4,512 analysts. Wieser has a 76% success rate and garners 11.8% in his annual returns. When recommending SNAP, Wieser earns 0.0% in average profits on the stock.

TipRanks analytics indicate SNAP as a Sell. Additionally, James Cordwell of Atlantic Equities rates a Hold rating on SNAP with a $14 price target, which represents a 44% downside from where the shares last closed.

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