Shares in Snap rose 4 per cent on Monday morning in New York as the owner of Snapchat received five ‘buy’ ratings from analysts including the lead underwriter Morgan Stanley.
Snap was just shy of its first day price, trading at $23.59, after a rocky ride since its initial public offering at the start of the month. Many of the initial analyst notes had recommended selling the stock because of concerns the loss-making company was overpriced and faced fierce competition.
Morgan Stanley, which led the $20bn IPO, issued an ‘overweight’ rating and a $28 price target, saying it was “bullish” on its young, engaged audience and its ability to increase the number of advertisements it sells to target them.
Brian Womack, an analyst at Morgan Stanley, said Snap will probably not make an adjusted profit until 2020, but then will be able to scale to healthy margins by 2025.
Other analysts were positive about the company’s low capital expenditure costs, because it relies on buying cloud space from Amazon and Google rather than running its own data centres, and its ability to innovate on the product to keep consumers entertained. Many believed the expanding mobile advertising market gave Snap lots of room to grow.