The first sell-side call on Snap Inc. is a resounding "sell."
The owner of the Snapchat messaging app made its public market debut on Thursday, with its shares soaring by 50 per cent by mid-afternoon.
From its IPO price of $17 (U.S.), Snap shares surged north of $25, lifting the company's market capitalization to nearly $30-billion.
Fair value for the stock, however, would be closer to $10, and even that's generous, according to the first analyst to issue a recommendation on the stock.
"Snap's risks include heightened uncertainty, the competitive environment, slowing growth in the user base, a lack of a track record in building a successful business, high costs and ongoing dilution as well as sub-optimal organizational design and corporate governance," Brian Wieser, an analyst at New York-based Pivotal Research Group, wrote in a note to clients.
He rated Snap's stock a "sell," at a one-year price target of $10, which would represent a 60-per-cent decline from current trading price. "Our model feels potentially stretched in even getting to $10 per share," he said.
Mr. Wieser acknowledged Snap's allure for investors keen to tap into a unique messaging platform popular with a relatively young demographic.
Regarding the business itself, Mr. Wieser said he's cautiously optimistic for the early-stage company.
"Unfortunately, it is significantly overvalued," he said, pointing to the considerable risks that need to be weighed against Snap's market opportunity.
"Investors in Snap will be exposed to an upstart facing aggressive competition from much larger companies, with a core user base that is not growing by much and which is only relatively elusive."