Snap just got a downgrade on Wall Street after one day of trading

Published Fri, Mar 3 20179:59 AM ESTUpdated Fri, Mar 3 201711:01 AM EST

Atlantic Equities, a small London-based brokerage firm, downgraded Snap a day after the social-media company went public. Atlantic downgraded Snap to underweight from neutral on Friday, telling investor to avoid the stock as valuations following its initial public offering may be "unsustainable." "At current levels the stock is trading at a premium to Facebook after normalising for engagement levels. This seems unsustainable given Snap's unproven monetisation potential, structurally lower profitability and likely challenges in materially reaccelerating user growth," equity analyst James Cordwell wrote in a research note. The research firm made the unusual move of rating Snap before it went public. A few firms initiated coverage Thursday, but most will wait before putting out significant research on the new company. Many of the bigger banks, which were involved in the underwriting of Snap, are barred from putting out any research on the new stock for a period of time. Snap stock during its debut on Thursday Source: FactSet Instinet initiated coverage on Snap on Thursday with a reduce rating, saying future financial results will likely disappoint investors. The firm was the second on Wall Street to initiate Snap with a sell rating following Pivotal Research Group. Venture capitalist Gene Munster echoed that sentiment in a CNBC interview this week, telling investors the stock is likely to tread water in the months ahead. "This is an expensive stock, so I think it's going to be choppy for the next year," Munster said. Snap shares rallied 44 percent on Thursday, closing at $24.48 after the company priced its initial public offering at $17 a share. The hot startup is now valued at around $28 billion, about the size of CBS. "While valuation appears exceedingly stretched in our view, the risk to our downgrade is that in the near-term the stock will continue to trade on factors other than the fundamentals of the company," Atlantic's Cordwell said. In the next 12-months, Atlantic Equities predicts shares of Snap could trade at $14 per share, implying a loss of nearly 43 percent from where the stock closed on Thursday. —CNBC's Michael Bloom contributed to this story. Disclosure: NBCUniversal is an investor in Snap.

A banner for Snap Inc. hangs on the facade of the the New York Stock Exchange on the eve of the company's IPO in New York.

Brendan McDermid | Reuters

Atlantic Equities, a small London-based brokerage firm, downgraded Snap a day after the social-media company went public.

Atlantic downgraded Snap to underweight from neutral on Friday, telling investor to avoid the stock as valuations following its initial public offering may be "unsustainable."

"At current levels the stock is trading at a premium to Facebook after normalising for engagement levels. This seems unsustainable given Snap's unproven monetisation potential, structurally lower profitability and likely challenges in materially reaccelerating user growth," equity analyst James Cordwell wrote in a research note.

The research firm made the unusual move of rating Snap before it went public. A few firms initiated coverage Thursday, but most will wait before putting out significant research on the new company. Many of the bigger banks, which were involved in the underwriting of Snap, are barred from putting out any research on the new stock for a period of time.