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Snap shares continue to rise after IPO but analysts remain wary

Some analysts warned against “hot air” fueling the dramatic rise.

Shares in Snap Inc, the picture messaging app that went public yesterday with a valuation of $29bn this week, continued to soar on Friday as some analysts warned against “hot air” fuelling the dramatic rise.

Snap priced its initial public offering at $17 a share, and opened up for trading Thursday at $24. In trading since, the stock has continued to be buoyed by investor excitement, rising above $27 per share by Friday noon.

Related: Snapchat goes public at $29bn and makes co-founders tech billionaires

The stock rose substantially after media firm NBC Universal disclosed a $500m stake taken at the initial public offering (IPO).

The initial success of the offering raises the likelihood that the tech sector could soon further public offerings, but analysts remain wary.

In a note to clients, Global Equities Research analyst Trip Chowdhry compared Snap to Fitbit, Groupon and Twitter – all companies that have struggled to maintain valuations since going public.

“Let all the hot air go out, let the private investors cash out, let’s see how the Industry evolves in 1.5 years,” Chowdhry told The Wall Street Journal.

His warning was repeated by other tech sector analysts concerned that Snap will follow a pattern of hot then cooling tech IPOs.

“Euphoria could cause a short-term disconnect between fundamentals and valuation,” warned Susquehanna Financial analyst Shyam Patil in a note to investors.

Patil said that while there is still room for near-term upside, “we struggle to see SNAP as a long-term investment.”

On Thursday, Instinet analyst Anthony DiClemente urged investors to reduce their holdings of Snap, warning that the company is already seeing a slowdown in the growth of daily average users and average revenue per users.

Related: How US school turned $15,000 into $24m with Snapchat flotation

But in a letter to employees, NBC CEO Steve Burke said the company had invested in Snap as part of an aggressive strategy to capitalize on increasing digital content consumption.

“It is rare to have the opportunity to invest at this stage in a company as visionary and dynamic as Snap,” Burke said.

He said NBC had invested over $1.5bn in digital businesses in the last 18 months, adding that Snap CEO Evan Spiegel and his team have done “an outstanding job building Snap into an extremely innovative and relevant company”.

Meanwhile, beneficiaries of Snap’s IPO include a private Catholic high school in California’s Silicon Valley that made $24m. St Francis High School’s president Simon Chiu said the school would use the funds for financial aid, professional development, teacher training and funding of school programs.

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