STIFEL: Buy Snap because it's what investors want Twitter to be (SNAP)

SNAP IPO 11

A few weeks ahead of Snap's lock-up expiration, shares are trading below their $17 initial public offering price. But that might be because of a simple lack of understanding, according to Stifel.

"In our view, Snap is what investors have long wanted (and many still want) Twitter to be; a thriving communications platform for hundreds of millions of high-value consumers whose nimble product innovation can drive engagement / monetization in the face of competition from Internet behemoths like Google, Facebook, and Amazon," Scott Devitt, an analyst at Stifel, wrote in a note sent out to clients on Thursday.

He says that Twitter's main attraction to investors is that they understand, use and love the platform. Snap, on the other hand, is not aimed at investors and the community has yet to understand its platform and its users.

"We think this creates an opportunity for investors that can take a step back from their personal preferences and look at the data," Devitt said.

Devitt believes investors are too heavily weighting a July 30 lock-up expiration, where company executives and insiders will have their first opportunity to sell their shares post-IPO. 950 million shares will become available for trading on July 31, the first day markets are open after the lockup expires. However, roughly 50% of those shares are held by the co-founders, who Devitt thinks will hold on to most of their shares.

Investors are not only worried about new shares flooding the market. They also have concerns about user growth and retention. But, downloads have been stable in Snap's key revenue-driving demographics and its rankings look remarkably similar to Instagram, who investors worry is stealing away Snap's users.

Not only are the users staying with Snap, they are also highly engaged, according to Devitt. Users spend more than 30 minutes a day on Snap's app and send more than 3 billion snaps per day.

Devitt upgraded Snap to a buy in his note, but left his $22 price target unchanged.

Snap is down 36.47% since its IPO.