The day that Snap, Inc. (NYSE:$SNAP) has been dreading since its stock fell below its initial public offering (IPO) is here. On Saturday, July 29, post IPO lock-up expired for early investors. This means that a number of shares will be eligible for open-market trading on Monday, July 31 – something that could cause Snap some struggles in the coming weeks.
About 400 million shares could be up for open-market trading on July 31. As such, Snap’s stock decreased by almost 5.1% during early morning trading before trading mostly flat at 11:59 A.M. ET. Since its IPO on March 1, Snap’s stock has fallen by about 19%. The continuous fall that Snap’s stock has been experiencing has made it an emerging favourite among short sellers who don’t believe Snap should be valued at $20 billion.
Snap’s popularity amongst short sellers has raised the price of shorts, where borrowing fees have reached 50% to 60%. As such, trading has become a bit expensive for investors. However, with Snap’s stock hitting lock-up expiration, financial analytics firm S3 Partners (traded privately) estimate that short prices should go down about 5%, making this good news for short traders.
But even with about 800 million shares eligible to be up for open-market trading by late August, the people who own those shares — investors, employees, directors, founders, and insiders alike — may not sell them right away. As a result, shorting activity may only go up earlier this week depending on how many shares early investors put up for open-market trading.
Despite this, not everyone has a bearish view of of Snap’s lock-up expiring. For example, Barclays (LON:$BARC) believes that once shares bottom out, Snap’s stock during post-lock-up could be a good time to buy. “The negativity in the past few months around Snap ahead of its lock up expiration is creating an opportunity in our view. We would wait until the heavy lock up volume subsides to add to positions, likely sometime mid 3Q,” Barclays said.
Lock-up expiration for employee shares will occur on August 14, and Snap has been holding seminars for workers that explains the responsibilities of a public stockholder – such as not shorting stocks or leaking information about the company – according to those familiar with Snap. Professors at Stanford University have also been recruited by Snap to teach its soon-to-be millionaire employees how to best manage their wealth. Snap CEO Evan Spiegel has also been encouraging his employees to focus more on the work of the company rather than worrying about Snap’s stock price.
This time will be a rocky period for Snap – but if the company manages to keep other shareholders besides early investors to keep their shares, the company may be able to save itself from further damage regarding its share price.
Featured Image: twitter
