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Analyst Outlines Why Snapchat Has a Facebook Put for Potential Buyout
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Loading...Snap Inc. (NYSE: SNAP) has had a pretty wild initial public offering. After some analysts and publications have discussed how overvalued the parent of Snapchat really is, one more analyst has chimed in with a less negative view of Snap. A firm called FBN Securities has rated Snap with a Sector Perform rating and assigned a $23 price target.
After shares closed on Wednesday at $22.81, what investors will care about here is that if the price of Snap gets too low then Facebook Inc. (NASDAQ: FB) is speculated to be a buyer. There is also a Twitter Inc. (NYSE: TWTR) aspect to this call.
Before getting excited that perhaps Snap would be considered as a hostile acquisition, guess again. Snap’s founders have full control, and the public stock buyers have no vote whatsoever in Snap’s management decisions.
FBN’s Shelby Seyrafi noted that Snap has a very strong presence in the 12- to 24-year-old age demographic and that Snap has been highly innovative so far. The analyst’s checks so far indicated that advertisers intend to spend much more on Snap, and at the expense of Twitter, later in 2017.
FBN did address some key concerns, hence the Sector Perform rating. These were slowing user growth, its relatively weak presence outside of the 12-to-24 demographic, and of course the weak corporate governance, in which shareholders get no vote at all. In fact, the report further highlights that Snap is unlikely to be admitted to any of the major indexes due to investors having no vote. Other concerns included massive operating losses and difficulty penetrating non-developed markets.
Several reasons were highlighted for why Facebook might make a bid for Snap at the right price. The primary reason was that Facebook already tried to acquire Snap for about $3 billion back in 2013. Facebook is also said to have the balance sheet and cash flow to finance such a deal. Lastly, a deal to acquire Snapchat’s parent would remove one of the few long-term threats to its business.
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