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Jul 31, 2017

Snap's shares pare losses in brisk trading as lockup ends

A woman stands in front of the logo of Snap Inc. on the floor of the New York Stock Exchange in New York City

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NEW YORK  - Shares of Snap Inc (SNAP.N), owner of the Snapchat messaging app, clawed back much of its earlier losses in volatile trading on Monday, after dropping to a new low as the expiration of a share lockup allowed early investors to sell.

The stock was last down 0.1 per cent at US$13.79 after falling as much as 5.1 per cent and hitting a low of US$13.10, putting it well below its early March initial public offering price of US$17.

Trading volume was 1.5 times the company's 10-day moving average with more than 26 million shares having changed hands just two hours into the regular trading session.

Starting on Monday and extending into August, early investors, employees and other insiders can sell shares for the first time since its $3.4 billion IPO, the third-largest for a U.S. technology company.

Shares turned positive briefly and the high for the day was US$13.84, a few cents higher than Friday's close. It had fallen 53 per cent below its March 3 intraday peak as investors bid it lower amid concerns over its growth prospects.

"Apparently enough sell-off has taken place in the last couple of months. Some on the retail side must be viewing this as a opportunity to get in at a low price," said Morningstar analyst Ali Mogharabi.

"Some of the early investors ... may have some patience to wait and see if this company becomes profitable and see if they can reaccelerate growth on the user side" said the analyst who rates the stock neutral and sees US$16 per share as a fair valuation.

Snap could also be seeing some short covering, according to Mogharabi. Almost 6 per cent of its shares were sold short as of July 14 according to the latest Reuters data.

Many investors likely positioned themselves early ahead of the expiration, according to Drexel Hamilton analyst Brian White, who recommends that investors buy the stock has a 12-month price target of US$30 for the stock.

"If you can look out one year, this is a great buying opportunity at this level. The company is a big disrupter and an enormous mobile advertising platform," said

As of Monday, investors including Lightspeed Venture Partners will be able to sell up to 400 million shares, with employees owning another 782 million allowed to start selling on Aug. 14, four days after Snap reports results, JPMorgan analyst Doug Anmuth said in a recent note.

Share prices can move dramatically when lockups expire. For example, Twitter Inc (TWTR.N) shares fell 18 per cent on the day of a key lockup expiry in May 2014, and in November 2012, Facebook Inc (FB.O) jumped 13 per cent on its lockup expiry.

Snap did not immediately respond to a request for comment.