Snap's value disappearing faster than its messages

NEW YORK - Investors are souring on Snap (SNAP) only five months after the social messaging service went public. 

Shares in the company fell more than 11 percent to $12.22 on Friday, reaching their lowest level since Snap's ballyhooed initial public offering in March. That's well below the company's $17 IPO price, and it's less than half of the $24.48 that the stock closed at on its first trading day.

Adding to the uncertainty, Snap employees will be able to sell their stock on Monday, when a lockup period that follows the company's initial public offering expires. An earlier lockup expired in July, but on Monday, more shares will be eligible for sale.

Wall Street has taken notice amid growing doubts about Snap's business model, which has never yielded a profit. UBS analysts on Friday lowered their estimate of the company's stock price over the next 12 months from $19 to $12.

"For the 2nd quarter in row, SNAP produced a set of quarterly results that continue to leave unanswered many of the long-term debates on the scope of its platform," they wrote in a report, noting that it must show that it can grow quickly to justify its market valuation.

Snap's problem is that its growth has slowed sharply. The company disclosed Thursday in reporting its latest earnings that user growth for the April-June period was up only 4 percent from the previous quarter. An average of 173 million people used Snap daily during the latest quarter.

Snap reported revenue of $181.7 million for the quarter, up from $71.8 million in the year-ago period. But its net loss also swelled, to $443 million, from $115.9 million a year ago.

Snap founder and CEO Evan Spiegel thinks the company is on the right track. In a conference call with analysts on Thursday, he said Snap's ability to make money off its considerable user base it "progressing nicely" and highlighted the 153 percent increase in revenue from a year ago. 

Spiegel also said more advertisers are adopting Snap's ad platform, and he highlighted the growing popularity of its new tech features. 

"We've seen great traction with many of our new products, from lenses and creative tools that inspire Snap creation to Search, Maps and Memories that provide new ways to view snaps," he said. "Although many of these products are in their infancy, we should be able to improve them quickly as our community adopts them and lets us know how we can better serve their needs." 

Snap must hope its community acts fast. An analyst for Morgan Stanley, the lead underwriter for Snap's IPO, recently cut his rating on the company's stock, citing competition from Facebook-owned Instagram and worries that Snap's advertising offerings aren't improving. Instagram Stories, which launched in August 2016, now reaches more than 250 million users per day, according to eMarketer.

The analyst, Brian Nowak, said the company needs to do more so that advertisers don't see it as a mere experiment, but a serious player.