What's going on?

On Monday, shares of Snap Inc. fell below the price at which the company became a public company (i.e. completed an IPO). And they fell another 7% on Tuesday after a major bank sharply downgraded its expectations for the stock�s performance.

What does this mean?

Morgan Stanley, one of the banks that helped Snap Inc. complete its IPO back in March, downgraded its assessment of the company on Tuesday and dropped its �target price� from $28 to $16 per share, which is about its current price (a �target price� is, usually, the price at which the research analyst thinks the shares will be in a year�s time).


The research department is separate from the part of the bank that deals with Snap directly. So, in theory, it shouldn’t matter that the bad report came from a bank that helped Snap with the IPO. But despite this supposed distinction, investors still care (seemingly more than they would if it came from a bank that wasn’t part of the IPO). Morgan Stanley said that Snap�s ad platform wasn�t evolving as quickly as expected and that competition from Facebook-owned Instagram is rising.

Why should I care?

For markets: Investors think Snap�s story has darkened in recent months.

With Snap�s stock now at almost half of the peak it reached on the day following its IPO, investors are clearly concerned that they were too optimistic back in March. Part of the problem emerged in early May when Snap reported its earnings for the first time as a public company � and the stock sold off sharply as investors digested a greater-than-expected loss and declining user growth in the first quarter. If Snap�s product development is flagging, as Morgan Stanley suggests, that would be another significant concern for investors.


The bigger picture: The performance of recent tech IPOs is a little concerning.

Snap isn�t the only recent tech stock to fall below its IPO price. Blue Apron, which went public only two weeks ago, has lost about 20% of its value already. Nutanix, a venture-backed cloud computing company that went public late last year, has lost almost half its value. With Dropbox, Airbnb and Uber possibly preparing for their IPOs, they may encounter a much more skeptical market.