There was a time when Snap Inc’s (NYSE:SNAP) disappearing message service was hailed by Wall Street as the next big thing in social media. Worries about Facebook Inc’s (NASDAQ:FB) ability to continue building its empire as SNAP chipped away at its clout among young people provided the perfect backdrop for Snapchat’s IPO, and many were chomping at the bit to get a piece of the little white ghost.
Fast-forward five months and you have a very different story. The stock has lost nearly 50% since its debut — including over 20% in just the past month during the leadup to the firm’s lockup expiration.
Now, some analysts are saying it could be time to buy SNAP stock. After all, Facebook, Twitter Inc (NYSE:TWTR) and LinkedIn suffered from similar dips after their own lockups expired and all three saw their share price increase again a few months later.
First of all, TWTR isn’t the best example of a social media stock you want to have hanging around in your portfolio. Secondly, this week was only the beginning of the lockup expirations. But more importantly, Snap has a lot of other massive problems outside of just the lockup expiration that make it a poor investment option.
July 29 was the beginning of SNAP’s lockup expiration, and 400 million shares from early investors were able to go up for sale. Aug. 14 is the next big date, at which time employees, directors, founders and insiders with a total of 782 million shares will be able to sell. Finally, on Aug. 29 an additional 20 million early investor shares will be unlocked.
Many analysts see early investors selling at least some of their shares. S3 has estimated somewhere between 10% and 30% of those shares making it to the market. However, the employee, director and insiders piece of the pie is a little bit more complicated.
Usually, you wouldn’t expect to see many of those people get rid of their company shares, but in the case of SNAP we might see at least a small departure from that norm.
I say that because the company culture at Snapchat is unusual and the firm hasn’t exactly been known for its employee retention as of late. Three of the firm’s top-level leaders recently departed — VP of Human Resources Robyn Thomas and VP of Security Martin Lev, as well as General Counsel Chris Handman, all left the company over the past two months.