Snap shares tumble after shareholders get first chance to sell

1 Aug 201731 Shares

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Snap’s defining product, Snapchat. Image: Wachiwit/Shutterstock

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It was a day of reckoning for Snap as shareholders were allowed to legally sell their stock – but it didn’t start well.

Since its IPO in March of this year, Snap shareholders have been counting down the days and weeks until the company’s lockup expiration arrived, that being the first time they could legally sell their shares.

The date arrived on Monday (31 July) and, to the initial worry of the company, it showed a drop in stock by as much as 5pc, marking a new low – 23pc below its original $17 price – in the newly publicly trading company.

According to CNBC, from the original estimates of 400m shares, the price dropped to $13.10, sparking worries among its investors.

However, to their relief, the shares recovered later in the day to a high of $13.84 for a brief amount of time.

Unlike traditional IPOs, Snap’s investors were initially given no voting rights, which meant that even the likes of CEO Evan Spiegel were prohibited from selling any shares in the company until the recent lockup expiration.

A familiar trend

Starting from 14 August, Snap employees will get the first chance to sell their stock, bringing an additional 782m shares into the mix, estimated to be around 97pc of the company’s total stock by the end of that month.

Despite the sell-off, market analysts have said this is a common experience for major social media companies following the lockup expiration date.

Speaking with CNBC, MKM derivatives strategist Jim Strugger said: “Notably, LinkedIn, Twitter and Facebook all bottomed within a week of their lockup expirations, a bias that points to getting directionally long Snap down here.”

Snap’s ability to court media companies to part with their cash continued last month when it announced a $100m deal with Time Warner to host 10 new shows on the Snapchat app.

Time Warner’s executive VP, Gary Ginsberg, said that Snapchat had driven the “evolution of media”, and would bring a new audience to its shows.

Snap’s defining product, Snapchat. Image: Wachiwit/Shutterstock

Colm Gorey is a journalist with Siliconrepublic.com

editorial@siliconrepublic.com