Snap Inc (NYSE:SNAP) Shares Could Test IPO Price Level On Thursday?

Snap Inc (NYSE:SNAP) Shares Could Test IPO Price Level On Thursday?


Snap Inc (NYSE:SNAP) shares could come under selling pressure on Thursday after the company delivered disappointing earnings number for the March quarter. This was the first quarterly earnings announcement from the company after its IPO in March. It priced its IPO at $17 a share and the stock is under threat of testing it on Thursday after the results disappointed investors.

Snap’s results could allow sell side analysts to raise its chorus against the company’s weak numbers in the first quarter. The valuation of the company could also come under the scrutiny of different brokerages again. The results could mean that there is every chance that the company could go in the same way Twitter Inc (NYSE:TWTR) or GoPro Inc (NASDAQ:GPRO) or Fitbit Inc (NYSE:FIT). All these companies demonstrated promise during the IPO and immediate but could not held on to it for a long time.

Snap’s daily active users recorded 36 percent year-over-year growth to 166 million from 122 million. On a quarter-over-quarter basis, the growth was five percent from 158 million. This is slightly lower than the expectations of 168 million. The growth is slower than the 48 percent witnessed in 2016. Facebook Inc (NASDAQ:FB) had a similar audience rate before the company came out with its IPO.

Aside from the user growth, average revenue per user (ARPU) will remain a concern for investors. Though its ARPU of $0.90 witnessed a jump of 181 percent from the same period last year, its ARPU dropped 14 percent from the fourth quarter when it was $1.05. Similar is the case in respect of hosting costs per DAU. Snap’s hosting costs per DAU was 60 cents in first quarter compared to 52 cents in fourth quarter and 72 cents in the fourth quarter.

This could raise question over valuation. At time of the company came out with an IPO, Snap’s valuation in respect of $404.5 million revenue generated in 2016 offered a ratio of 58.8. This was higher than the 44.8 times and 28 times enjoyed by Twitter and Facebook respectively. The least ratio of 3.7 times was enjoyed by Microsoft Corporation (NASDAQ:MSFT).

Snap could derive solace that it could beat the competition to reach whatever growth it could unlike Facebook or Twitter that did not have the kind of competition that Snap has now. However, that would not be enough for valuation.

On Wednesday’s after-hours trading, the stock plunged 21.89 percent to trade below $18 level. If there is going to be more selling pressure, then the stock could test IPO price.