Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Snapchat hasn't changed fundamentally since it became a public company in March, but investors' attitudes about the company sure have.

Investors eagerly bought $3.9 billion worth of Snap Inc.'s stock more than four months ago, but doubts are creeping in. Shares have fallen from an intraday high of $29.44 in the days after the IPO to $15.85 on Thursday, about 7 percent below the first stock sale. 

Spooky Stock
Snapchat shares are below the company's March IPO price and lower than the assessed value of its stock a year ago
Sources: Snapchat securities filings and Bloomberg
Note: Fair value in July 2016 was Snapchat's assessment to price employee stock awards.

The latest blow was a flip-flop by the stock analysts at Morgan Stanley, whose investment bankers guided Snapchat's IPO. The analysts changed their minds about how quickly Snapchat can improve its nascent options for advertisers and whether it can ward off competition from Facebook. The bank had said in March that Snapchat's stock was worth buying and set a $28 price target. Now the analysts are neutral and say shares are worth $16. That's quite a reversal.

Morgan Stanley isn't the only Wall Street doubter. After the first wave of Snapchat stock research, the average analyst price target for Snapchat was nearly $24, according to Bloomberg data. Now it's $20.46. 

The odd thing is that Snapchat is still the same company it was on March 1, when investors were falling over themselves to own stock at an insane 23 times the company's 2017 revenue forecasts. Snapchat still has a devoted but far from Facebook-sized crew of fans. It's still a cash bonfire with slowing user growth. It's still a creative, much-copied outlet for communication and entertainment. Mark Zuckerberg still wants to strangle Snapchat to death.

Nothing New
Until recently, investors in Snapchat had been willing to overlook a slowdown in the number of new people who use the app each day
Source: Snapchat
Note: Figures reflect Snapchat's calculation of the daily average across each quarter reported.

People were more than willing to overlook Snapchat's flaws four months ago, but not anymore. So what changed?

It didn't help that Snapchat's first earnings report as a public company was meh. Plus at the end of July, more than 1.1 billion Snapchat shares will suddenly become free to sell, which is sure to pressure the stock price. And there has been a recalibration of investors' attitude about tech stocks generally and maybe young tech companies in particular.

There is now fear that stock investors have overcrowded into technology companies. And for newly public tech companies, no one looks foolproof. Blue Apron was never going to be a surefire winner but it definitely isn't now. Uber's chaos doesn't look to have hurt its business very much, but it showed young companies aren't immune from growing pains no matter their valuations. 

There are a couple of things about the Snapchat panic attack that make me worry this isn't a temporary stutter in the stock price. The Morgan Stanley analysts' flip-flop came after they talked to people involved in advertising, who said they are struggling to develop Snapchat ads that generate good returns on their investment. Uh oh. Among the best things Snapchat has going for it is the zeal with which advertisers embraced Snapchat ads. If advertisers' perceptions have changed, that's not good. 

And then there is the looming crush of a massive supply increase of Snapchat shares. Fewer than 230 million shares are freely available to trade now, and that will spike at the end of the month to more than 1.1 billion including shares owned by Snapchat executives, employees, early stockholders and others.  (Like many newly public companies, Snapchat has a "lock up" period during which most stockholders are essentially barred from selling.) Not everyone is going to unload Snap stock then. But you have to assume a bigger supply of shares will skew the stock trading.

I don't want to overplay a stock decline just months after a company's market debut. But Snapchat's swoon isn't meaningless, either. It's the inaugural IPO from one of the stars of the mobile-first tech generation that includes Airbnb, Pinterest, Uber and Didi Chuxing. Snapchat and its compatriots have both incredible promise and undeniable pitfalls in their business models or sustainability.

Every company is different, of course. But Snapchat has shown investors are choosing to focus on the warts over the potential. That's not a great sign for how investors might greet its peers.

A version of this column originally appeared in Bloomberg's Fully Charged technology newsletter. You can sign up here.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. I have poked fun at the analysts from Snapchat's underwriter banks for being unusually bullish on the company. But I also acknowledge this is likely a no-win scenario for the Morgan Stanley stock analysts. If they are gaga for Snapchat, they seem to be cheerleading so their investment banking colleagues can make more money from advising Snapchat. And now that they flip-flopped, they risk annoying clients who feel duped into buying Snapchat stock on Morgan Stanley's earlier recommendation. 

  2. There will be some restrictions on sales by executives, employees and other.

To contact the author of this story:
Shira Ovide in New York at

To contact the editor responsible for this story:
Daniel Niemi at