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Snap Shares Rise as Underwriters Start Coverage with 'Buy'


A banner for Snap Inc. hangs from the front of the New York Stock Exchange, March 2, 2017, in New York.
A banner for Snap Inc. hangs from the front of the New York Stock Exchange, March 2, 2017, in New York.

Snap Inc., owner of messaging app Snapchat, received top ratings from a number of its IPO underwriters on Monday, sending its shares up more than 3 percent in premarket trading.

Snap had a red-hot debut on March 1 in what was the largest listing by a technology firm in three years. However, many investors have been critical of the company's lack of profitability and decelerating user growth.

At least six brokerages, including Morgan Stanley and Goldman Sachs, rated the stock "buy" or higher, citing the company's long-term growth in a highly competitive market.

As of Friday's close, the stock had risen nearly 34 percent from its $17 initial public offering price. The stock was trading at $23.52 before the bell on Monday.

The Los Angeles-based company's app, which allows users to share short-lived messages and pictures, is popular with young people but faces intense competition from larger rivals such as Facebook Inc.'s Instagram. Snap has warned it may never become profitable.

"SNAP's engaged/hard-to-reach millennial users and unique video offerings should attract significant ad dollars," said Morgan Stanley analysts, who started the stock with an "overweight" rating.

The analysts also said that Snap's ad monetization was still in its infancy.

Among other underwriters, Jefferies, RBC, Cowen & Co and Credit Suisse rated the stock a "buy." RBC was the most bullish with a $31 price target.

"The big question is whether SNAP's user base can 'age up,'" analysts at Cowen & Co. said in a note.

However, JP Morgan, also an underwriter, started with a "neutral" rating.

"[The] neutral rating is driven by an increasingly competitive social media landscape which includes Facebook and others implementing successful Snap features across a broader user base, potentially weighing on user growth, and lack of profit until 2019E," JP Morgan analysts said.

Including the latest actions, Snap now has eight "buy" or higher ratings, six "sell" and seven "neutral" ratings, according to Thomson Reuters data.

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    Reuters

    Reuters is a news agency founded in 1851 and owned by the Thomson Reuters Corporation based in Toronto, Canada. One of the world's largest wire services, it provides financial news as well as international coverage in over 16 languages to more than 1000 newspapers and 750 broadcasters around the globe.

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