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What Went Wrong with Snapchat Stock?

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Gauging last week’s fall

Shares of social media stock Snapchat (SNAP) fell 18.5% in the week ended March 10, 2017, to close at $22.07. Snapchat’s shares rose 44% on March 2, 2017—the first day it was listed on the New York Stock Exchange. Shares of the firm rose 10.7% on the second day of trading to close at $27.09.

The firm sold 145 million shares at $17 per share during its IPO (initial public offering) and raised nearly $2.5 billion. Leading investment banks such as Goldman Sachs (GS) and Morgan Stanley (MS) suggested that Snapchat could have kept the offer price higher, as the order book ratio was 10-to-1.

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Is Snapchat overvalued?

Snapchat’s market capitalization is currently $25 billion, primarily due to its large user base. The firm’s daily active subscribers have increased from 110 million in 4Q15 to over 160 million in 4Q16, as the chart above shows.

Analysts believe, however, that it will be difficult for Snapchat to engage users for long periods of time, as compared to social media sites like Facebook (FB) and Twitter (TWTR). The application could also find it difficult to attract advertisers, as compared to Internet heavyweights like Google (GOOG) and Facebook (FB).

New growth, analyst recommendations

Snap is, however, taking early steps not only to unlock new growth but also to diversify its revenue streams with camera-equipped Spectacles sunglasses. The Spectacles approach could pave the way for Snap’s entry into the virtual or augmented space that Facebook (FB), Microsoft (MSFT), and Sony (SNE) have shown to be potentially revolutionary in coming years.

Of the seven analysts who are covering Snapchat, four have rated it a “sell,” while three have rated it a “hold,” and none have rated it a “buy.” The average price target for the firm is $17.83, with a median target of $19. Snapchat is now trading at a premium of 14% to median analyst estimates.

Continue to the next part of this series for the latest on Windstream.

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