Shares in social media network owner of Snapchat, subject of the world’s biggest initial public offering in two years, staged a tentative rally in early trading on Wall Street, having slumped 14 per cent over the seven previous sessions compounded as the main investment bank behind the deal admitting its bullish view was “wrong”.
The stock gained as much as 1.8 per cent in early deals in New York to $15.75.
Snap, the owner of Snapchat, raised $3.4 billion in its initial public offering (IPO) in early March as shares were sold at $17 each in a deal where Morgan Stanley was the lead underwriter. It fell below the $17 IPO price on Monday.
Following the IPO, Morgan Stanley gave Snap the equivalent of a ‘buy’ rating and 12-month price target of $28 million, one of the most optimistic on Wall Street at the time.
However, the investment banking giant move this week to slash its price target to $16 - below the IPO price - with analysts led by Brian Nowak saying: “We have been wrong about Snap’s ability to innovate and improve its ad product this year and user monitisation.”
"We believe Instagram has become more aggressive in competing for Snap's ad dollars," they said.
Morgan Stanley now believes Snap’s revenue will reach $897 million this year, well below the $1 billion they once estimated.
Another of Snap's IPO underwriters, Credit Suisse, cut its price target on the stock this week to $25 from $30, warning the stock could fall lower this month as investors and insiders who had been prevented from selling their shares in the immediate aftermath of the deal will be free to do so.
