Needham & Company initiates coverage on Snap Inc (NYSE: SNAP) with a Underperform rating.

Analyst Laura Martin commented, "Prospect Theory would label SNAP a “lottery-like” stock. Sometimes lottery tickets do pay off, but a close scrutiny of SNAP’s fundamentals uncovers the following risks: 1) SNAP’s total addressable market (TAM) in is 80% smaller than FB’s; 2) SNAP already has 50% penetration of its TAM in the US; 2) SNAP has no ability to prevent “fast followers” from stealing its best ideas; 3) Our $3.3B revenue estimate in 2019 requires SNAP to have a 14-16% share of Adjusted Mobile or Adjusted Digital Ad spending by 2019, up from 2% in 2016; 4) Even if SNAP grows revenue 8-fold to $3.3B by 2019, its share price would decline based on FB & GOOG EV/Sales ratios; 5) no clear path to profitability before 2020; and 6) the academic literature suggests poor first-year performance. We believe SNAP’s value is $19-23/share, down 15-32%."

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Shares of Snap Inc closed at $27.09 yesterday.