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Snap Shares Bounce Back From Dip to IPO Prices

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After closing right at their IPO price of $17 on Thursday, shares of Snap Inc. (SNAP - Free Report) were up more than 3.5% through early afternoon trading hours Friday. While the trendy young stock seems to have found its bottom for now, it is unclear how long Snap will be able to sustain these levels—especially with the post-IPO lockup expiring soon.

Snap shares have been steadily slumping since the company’s disappointing first earnings report last month. The newly-public company burned through more than $2.6 billion in the first quarter, and although it blamed most of that on costs associated with its IPO, investors were simply not encouraged by Snap’s balance sheet.

On top of that, Snap has been battling an increasing number of “look-alike” competitors. Indeed, social media behemoth Facebook now has a version of the 24-hour “story” feature—popularized by Snapchat—on all its different platforms, which includes Facebook, Messenger, WhatsApp, and Instagram.

And to make matters worse, Snap’s slumping stock price could exacerbate the challenges it faces from competitors. After all, top positions in the tech world are powered by large stock-based compensation packages. If Snap continues to flirt with its IPO price, it could make it more difficult to attract new talent to the company.

Snap has been a polarizing stock since its debut, and even though it has garnered support from key analysts and fund leaders, it has also been a major target for short sellers. In fact, according to financial data firm S3 Partners, Snap is the third most-shorted stock in the application software sector, and shorts have already made a cool $195 million on their bearish predictions for Snap.

The simple laws of supply and demand could become a factor soon too. The company’s post-IPO lockup period is set to expire on July 31, meaning that an additional 84% of its total shares outstanding could hypothetically be up for sale.

With these trendy stocks, investors are typically more interested in future potential and market sentiment, rather than traditional valuation metrics. Nevertheless, it’s worth mentioning that Snap’s P/S ratio—a value metric that is often used for young tech companies that are not currently posting profits—sits at nearly 12. That’s not very encouraging.

For now, however, Snap continues to float above its IPO price. It will certainly be interesting to see how the stock behaves at these levels going forward (also read: Snap Shares Near IPO Price: Should You Buy?).

For more of this week’s top news stories, check out the latest episode of the Zacks Friday Finish Line podcast:

Want more stock market analysis from this author? Make sure to follow @Ryan_McQueeney on Twitter!

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