Snapchat’s Wall Street honeymoon came to an abrupt end on Monday, plummeting over 10 percent to below its IPO price.
The Snap stock (NYSE:SNAP) ended the day trading at $23.77 per share, below its opening price of $24. The fall comes after investors reacted warmly to the stock in the wake of its market debut last Thursday, rising 44 percent in its first day of trading.
However Snap’s fortunes appeared to change this week after several analysts initiated “sell” ratings on the stock. Needham initiated the coverage of the social media firm’s stock with an “underperform” rating, adding that the social media app’s market is 80 percent smaller than that of Facebook.
“Prospect Theory would label SNAP a ‘lottery-like’ stock,” the company said in a note to clients.
“The sexier and more glamorous a company’s IPO, the more likely it is to be overpriced at its IPO date,” Laura Martin, another analyst with Needham, wrote.
The ratings impacted investor confidence, leading to a sharp drop in shares at the beginning of this week. The biggest concern appears to be Snapchat’s user growth. Snap has 158 million daily users but added only five million new users in Q4, a sharp decline from earlier in the year.
Snapchat shares are currently down 9.08 percent at 21.44 (0834GMT).