Snap’s IPO was the most sought-after tech debut since Alibaba’s IPO. However, after a blistering debut (up 44% on the first day), the stock is now trading below its opening price. On Monday, the stock dropped 12% to close at its lowest level in the three full sessions it had traded, according to Reuters.

Facebook Snap
KiNG_PEEWEE / Pixabayapchat

Wall Street divided over Snap’s growth

Snap, which is the first U.S. technology company to hold an IPO this year, raised a whopping $3.4 billion during the event. Analysts across Wall Street have their own interesting analysis about the company, but the majority of them now have a Sell rating on the company.

Laura Martin, an analyst with Needham, feels that the more hyped and glamorous the company’s IPO is, the greater the downside risk. Martin noted that Snap’s offering was more like a lottery.

“Sometimes lottery tickets do pay off,” she said.

James Cordwell, a research analyst with Atlantic Equities, believes that the stock will have to fall in line with its fundamentals at some point.

“I guess that will start moving to the front of investors’ minds as we move toward the company’s first earnings report,” the analyst said.

Pivotal Research Group analyst Brian Wieser feels the stock is “significantly overvalued” and values “Snap at $10 per share.”

However, Ken Polcari, director of the NYSE floor division at O’Neil Securities in New York, feels, “It’s not necessarily because there’s something wrong with it. It’s because it probably moved way too far, way too fast.”

Snap needs to overcome several challenges

Snap, the parent company of Snapchat, has long maintained that its revenue is growing but that it has not trickled to the bottom line, and therefore, a profitable quarter is awaited. The company earns its revenue from digital advertising, but there are companies like Google and Facebook that are bigger and the most prominent in the same field.

As of now, it is not clear if (or how) Snap will make efforts to tap users beyond young Millennials or how will it stand up to competition in international markets. User growth for Snapchat is also showing signs of fatigue, according to the IPO filing last month. In part, this could be attributed to Facebook-owned Instagram, which launched a feature similar to Snapchat last year.

Early investors in the company are founders Evan Spiegel and Bobby Murphy, Michael Lynton, Timothy Sehn, Imran Khan and Lightspeed Venture Partners. On Monday, Snap closed down 12.26% at $23.77.