Snap Inc. (SNAP) shares are poised to open higher Friday after sliding to their IPO price amid questions over the social media app-maker's ability to generate profit and take on rivals such as Facebook (FB) .
Snap fell nearly 5% by the close of trading on Wall Street Thursday, but never dipped below the $17 price that shares were sold at on March 2, when the company debuted on the Nasdaq with a $3.4 billion IPO. By the end of that first trading day, with shares rising more than 44%, Snap was valued at just under $33 billion.
Since then, however, investors have questioned the relevance of the company's Snapchat app, which allows users to send quick photos and messages that disappear shortly afterwards, in a market dominated by messaging services such as Facebook's WhatsApp and the business-focused Slack Technologies, and have raised questions about its ability to monetize the billions of messages it handles each day.
Snap shares were trading 0.7% higher in premarket trading, indicating an opening price of $17.12 - which could still be some 41% south of the all-time high reached on March 3.
Earlier this week, TheStreet's founder Jim Cramer, who is also the manager of the Action Alerts PLUS portfolio, noted on CNBC's "Mad Dash" discussed how the restaurant group McDonald's Corp. (MD) has encouraging teens submit their application through Snap's Snapchat platform.
However, Cramer cautioned that, while the news provided a temporary bump for Snap, around 900 million shares will come unlocked from initial investors in August, which could put further downward pressure prices.
"Steel yourself if you're buying Snapchat off that McDonald's news," Cramer said, "be aware that there are some others that may not be as sanguine who can sell in August."
Deeper concerns over the group's ability to generate profits from the 3 billion messages and photos the app processes each day persist, as well, with a recent note from JPMorgan which sees Snap being weighed down by a lack of profit until 2020. The firm kept its "neutral" rating on Snap and cut the stock's price target to $18 from $20.
Engagement on the app is "strong" with 166 million users spending an average of 30 minutes per day on the app and ad revenue should grow 133% in 2017, wrote JPMorgan analyst Doug Anmuth. However, the company has only been working toward monetization for about two years and has "significant work" to do on its ad business.
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