Snapchat’s parent company, Snap, has seen its stock fall below its IPO price of $17 for the first time. This comes four months after the company went public in March, which first opened trading at $24.
After briefly touching the $17 floor back in mid-June, yesterday Snap’s stock price fell to an all-time low and closed at $16.99, losing more than $10 billion of market cap. At one time, Snap was valued at $31 billion. In short, that means if you bought into Snap at the opening price of $24 on the first day of trading, then you’ve unfortunately lost some money, 26% of your investment to be exact.
Some think the reasoning for the stock plunge is that lock-up period for the institutional investors and some insiders expires in the next couple of weeks on July 29th, which allows them to sell stock freely if so desired. Despite the stock being below the $17 IPO price, some Snap backers may be able to still make a profit as they could have invested in the many different rounds of funding.
Credit Suisse, which has an “outperform” rating on Snap stock, slashed its target price from $30 to $25 yesterday, noting that as many as 711 million shares—or about 60% of all Snap stock—could be sold when the lock-up expires. I can imagined a lot of other banks will follow suit.
Others think Snap’s growth has reached a plateau or may have even shrunk as it faces increased competition from Facebook, Instagram, and others. Specifically, investors are looking at “active users” as one of the most important metrics when it comes to valuing Snap and its competitors. To better illustrate, a high number of users is the driving force to encourage more advertising spending which lead directly to revenues.
It will be interesting to see how Snap’s stock price fluctuates as we get closer to the July 29th lock-up expiration as well as its next quarterly earnings in which daily active user information will be released.