Some of Snapchat's investors seem unfazed by sluggish growth

Wall Street is suddenly cutting Snap some slack.

Since going public in March, the company that runs Snapchat, Snap Inc., has watched its stock price sink as investors worried about whether it can compete with larger social-media rivals, especially Facebook-owned Instagram.

Then Snap issued a surprisingly weak earnings report on Aug. 10, including anemic user growth. That added fuel to the market’s skepticism about Snap’s long-term prospects and led to a plunge in its stock. The price fell well below its initial public offering price of $17 — an embarrassing milestone for any tech startup. By Aug. 11, the stock had declined 56 percent from its high of around $27, which it hit soon after going public in March.

But since last week, Snap has fared much better. In fact, the company’s share price is now up 15 percent from its recent low.

Why? Here’s why:

— Worries about selling by employees and executives have faded, now that a post-IPO “lockup” period has passed. (Lockups are periods after a company goes public when insiders are prevented from selling.) Some were worried there’d be a mass exodus of company insiders cashing out once they were allowed to sell. (That’s considered a bad sign about a company’s future prospects.) But the massive selloff seems not to have materialized.

— Some big shareholders are standing by Snap, according to new regulatory filings. T. Rowe Price Group, BlackRock, and the hedge fund Coatue Management have all recently increased their positions in Snap, Reuters reported.

— A few contrarians on Wall Street have started touting the long-term beatdown in Snap shares as a buying opportunity. For instance, Cantor Fitzgerald tech analyst Kip Paulson upgraded his rating on Snap last week to “overweight” from “neutral,” saying the valuation is now “attractive” after the post-earnings selloff.

Looking ahead, Snap still has plenty of work to do, even after its recent rise in the stock market. It currently has about 173 million daily active users, compared to about 250 million for Instagram, according to recent reports from both platforms’ parent companies.