Snap shares tumble 12%, close below IPO price

NEW YORK: After a euphoric market debut, Snap Inc shares dropped for the first time in three days and fell below the opening price of $24 on their first day of public trading after analysts began weighing in with their thoughts on the company’s true valuation.

The parent company of disappearing-photo app maker Snapchat priced shares in its IPO last Wednesday and they surged 44% on the first day of trading. On Friday the stock climbed a further 11%. By Monday, five of the seven analysts who cover the company had a sell rating on it while two said hold. No analyst recommends buying the stock, according to data compiled by Bloomberg. Not all analysts are able to give their opinion on the stock yet, since those who work at banks involved in the IPO are prevented from doing so for a while.

Snap fell 12% to $23.77 at the close Monday in New York, valuing the company at about $28 billion.

“Academic literature suggests that the sexier and more glamorous a company’s IPO, the more likely it is to be overpriced at its IPO date and to suffer meaningful downwards earnings and valuation revisions in the first eight quarters after it goes public,” wrote Laura Martin, an analyst at Needham & Co. She said Snap’s value is more like $19 to $23 a share.

Snap has been building out its advertising and media business, reminding investors of the early days of Facebook and Google’s YouTube. But the company is still years away from profitability, with a net loss higher than its revenue.