Last March, one of the major names in social media today, Snapchat, decided to take the big plunge by having its company Snap Inc. go public. Five months after its impressive initial public offer, however, the ephemeral photo messaging platform has seen better days on Wall Street. It has been common knowledge that the stock exchange has not had a high opinion of Snap Inc., which resulted in much of its market value dwindling away. From here, however, the situation could either improve or worsen dramatically, as the first period in the “lockup” agreement with Snapchat investors expired over the weekend, allowing the selling of its acquired stocks if their holders should choose to.
Dumping shares
As is the procedure for companies that have newly become public, Snap Inc. has had a lockup clause wherein its stock shares, held by employees and early-bird investors, cannot be sold for a specific period. Said deadline for the lockup expiration passed on Saturday, July 29. The effects of this stock trading restriction were first felt on the following Monday, July 31, the first day of Wall Street trading for this week. Early investors on the social media app’s company seem to be having second thoughts if the dumping of about 400 million Snapchat shares on that day was any indication.
The result was a massive 5% drop in market value for Snap Inc. on Wall Street since early Monday trading.
This was laid out in an investor note courtesy of JPMorgan analyst Donald Anmuth, who noted that some Snapchat company insiders were all too eager to cash out. It was only good fortune that later on in the day the stock somehow rebounded and went on a flat level, saving the tech firm from disaster. But this is merely the beginning to a much more serious situation for Snap Inc.
Test of value
The July 29 expiry of share lockup for Snapchat’s parent company is merely the beginning. On August 14, at about the time after Snap Inc. must report earnings for the second quarter, the second batch of shares that have been locked up will also be made eligible for dumping on the market. This then is the acid test for the plucky tech firm on whether its decision to go public on Wall Street was the right choice.
The prognosis is not exactly good, as stock for Snap Inc. hit a record low last month that took its value below their IPO for the first time. Snapchat can only hope that the downturn trend will pass soon, the same way that Facebook recovered after a drop during the first lockup expiry of the year it had gone public. Interestingly, FB’s Instagram has been on a Snapchat-copying frenzy lately.
