Snap Inc.'s rough week continued Tuesday, as a bank that led its initial public offering slashed its price target for the Snapchat parent's stock.
Snap shares dropped 7.9% in recent trading to $15.65. A day prior, shares fell below their IPO price of $17 for the first time.
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The waning confidence in Snap coincides with a stumble by another recent IPO. In late June, meal-delivery startup Blue Apron Holdings Inc. struggled to find buyers in its stock offering, priced its shares below its initial expectations, and has remained under its IPO price since its second day of trading. Though it isn't unusual for a newly listed company's stock to fall below its IPO price, it isn't a great sign for two high-profile IPOs to be struggling, many traders say.
Snap's decline on Tuesday came as analysts at Morgan Stanley, one of the lead underwriters on Snap's IPO, downgraded the company to equal weight from overweight and cut their price target from $28 a share to $16 apiece. Analysts typically assign ratings to companies they follow that indicate whether they recommend investors buy, hold or sell the stocks. Morgan Stanley's new rating suggests holding on to shares of Snap at a price of $16.
The bank cited increasing competition, noting that Facebook Inc.'s Instagram "has become more aggressive in competing for Snap's ad dollars." Morgan Stanley added that, as a result, it expects Snap's ad revenue growth to be "materially slower" than it previously expected.
Snap shares tumbled in May, after the company reported a slowdown in user growth for its disappearing-messaging app in its first quarterly earnings report as a publicly traded company. The company also reported its revenue in the quarter nearly quadrupled from a year earlier, but failed to exceed Snap's fourth-quarter revenue.
Morgan Stanley joins other banks that have now tempered their enthusiasm for Snap. In March, the average analyst target price was more than $23 a share, according to FactSet. As of July 11, that average target price slipped to a little more than $20 apiece.
More volatility could hit Snap shares when restrictions on stock sales by certain insiders and early investors in the company are lifted. In late July, more than 600 million shares will be freed up for sale, according to Dealogic.
Meanwhile, Blue Apron's stock dropped 11% to $7.23 in recent trading Tuesday, falling further from its $10 IPO price. The broader U.S. stock market was mixed Tuesday, with the S&P 500 falling less than 0.1%. The tech sector rose 0.3% in recent trading.
As of July 7, 45% of U.S.-listed companies that went public in 2017 have closed below their IPO prices at some point. More than one-third were still below as of July 7, according to Dealogic.
Another sign investors may be betting against Blue Apron and Snap: Traders are buying options contracts that tend to pay out on declines in the underlying stock. Bearish options called puts were outpacing bullish options, or calls, for both companies on Tuesday, according to Trade Alert.
Snap was widely seen by analysts, bankers and company executives as a test of the IPO market for other richly valued firms considering going public. Private companies largely avoided the public markets last year because of a winter selloff and potentially disruptive elections in Europe and the U. S. -- opting instead to rely on cash from venture-capital investors.
Last year was the slowest for U.S.-listed tech IPOs since 2009 in terms of number of deals and dollars raised, according to Dealogic data. The money raised by tech IPOs so far in 2017 exceeds 2016's full-year total.
Write to Corrie Driebusch at email@example.com
(END) Dow Jones Newswires
July 11, 2017 15:55 ET (19:55 GMT)