Thursday, July 13, 2017

Challenges From Instagram Result in Increased Short Selling in Snap Stock

Around the time when Snap IPO’ed, research analysts complimented the company’s young and engaged audience and ability to increase the advertisements sales.  As a result, average equity research analyst price target was $28/ share which was higher than the $17/share IPO price in March 2017.  However, recently, research analysts at Morgan Stanley, Citi, Piper Jaffray, Nomura, etc.) have decreased they targets significantly with some below the $17/share.  Recent Snap earnings have indicated that user growth was weaker than expected, there has been some struggle with taking digital advertisement market share from Facebook’s Instagram and Google, and the company has not convinced advertisers of its return on investment.  Facebook has been increasingly aggressive and has more engineers, capital and management than Snap.  In fact, Instagram Stories has 250 million daily active users vs. Snap’s 166 million users. 

As of 7/13, the stock price is approximately $16/share.  There are a lot of traders shorting the stock.  The current short interest is about a quarter of the shares outstanding.  Short sellers made profits of up to $396 million in just under six weeks in June and July.  But I do want to point out that there are some research analysts that believe Snap is worth more than the IPO price.  Per FactSet, the average target price is $20/share.  I will be tracking the stock in the next couple of weeks.  The post IPO share lock-up period will expire at the end of August and will not be surprised if the price continues to decline as the share float outstanding will increase by more than 500%.

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