Snap Underwriters Show Up At The Coverage Party Wearing The Same Dress

In a rare coincidence, most of the banks that got paid by Snap to sell its stock think highly of Snap stock.
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Snap's post-IPO quiet period ended Monday, giving us all the chance to see what the company's underwriters think of the stock they lovingly helped bring to market. Of course, thanks to regulatory firewalls erected between investment bankers and their analyst colleagues, investors can rest assured that the fact Goldman Sachs and others did business with Snap would have no malign influence on the ratings they assigned the thirst trap of the tech world.

SnapchatIPO

So it was a bit awkward when the debutante ball arrived and seven underwriters pranced out with the same “buy” rating. Goldman, Morgan Stanley, Jefferies, RBC, Cowen, and Credit Suisse all came out in green Monday. There were some zigs among the zags, however, including JPMorgan, which, despite its underwriter role, went with neutral:

"(The) neutral rating is driven by an increasingly competitive social media landscape which includes Facebook and others implementing successful Snap features across a broader user base, potentially weighing on user growth, and lack of profit until 2019E," JP Morgan analysts said.

That opinion put JPMorgan in line with the non-IPO banks that have rated Snap stock so far. Prior to Monday, Snap coverage consisted of included six “sells,” six “neutrals” and two “buys,” according to Reuters, with the rare positive ratings resting on the compelling logic of why-the-hell-not. But now with Snap's underwriters chiming in, the “buys” outnumber any other opinion. Here's a sampling of the bullish rationale:

  • Morgan Stanley: “We believe Snap's millennial audience and differentiated online video ad inventory are in demand by advertisers, and Snap’s growing direct ad sales efforts, recently opened advertising [for third parties], and continued ad unit innovation will pull ad dollars toward their platform.”
  • Goldman: “While this clearly carries a higher risk profile, we believe it also comes with higher reward potential. With Snap’s large, valuable, and highly engaged user base generating ad inventory and the monetization path in mobile now well worn, we believe the potential for outperformance as the company continues to innovate against the growing mobile opportunity outweighs those early stage risks.”
  • “Snap has become an innovation leader -- for both consumers and advertisers – in arguably the single fastest advertising medium today -- Mobile. It has also emerged as one of the leading Media Platforms for Millennials. We believe that if it sustains its current level of innovation, it can sustain premium growth for a long time and scale to profitability.”
  • Citi: “This ain’t your parents’ camera company.”

In case you didn't catch that: Millennials use Snapchat! Such are the insights gleaned from participating in an IPO, apparently.

Snap shares spike after 5 bullish analysts say 'Buy' [Yahoo Finance]
Snap shares rise as underwriters start coverage with 'buy' [Reuters]
Wall Street Is Suddenly Bullish On Snap [Bloomberg]

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