The Phaserl


Investor Group Attacks Snap’s No-Vote Shares, Stock Plunges

by Wolf Richter, Wolf Street:

Top indices might refuse to include Snap’s shares.

The third day was not the charm. Not for Snap, the company that owns the Snapchat app. An investor revolt, spearheaded by the Council of Institutional Investors, against Snap’s non-voting class A shares is now deflating a big part of the hype around its IPO.

The hype worked like this: The market capitalization of Snap would be pushed so high that major indices, including the S&P 500 index and the MSCI USA Index, would include the stock, and that index and pension funds that track these indices would all have to buy the shares, and thus drive up the share price even further.

That was the bet. And now news of the revolt is spreading.

Snap’s class A Shares plunged 12.3% to $23.77 at the close on Monday. Down 16% from their high in the morning. Shares now trade below the price at which they opened on March 2 during their first moments in the public market.

This is what Snap’s first three days in the public market look like, and it made a big dent in the glory of what had been the hottest technology IPO in three years:

Investors that made money so far on these Class A shares are the institutions that had bought them the day before at the IPO price of $17. But for the public, these class A shares haven’t been a picnic.

Much of the hype had been focused on the stock being included in the S&P 500 Index and the MSCI USA Index, given its IPO valuation of $24 billion, and its market capitalization on Friday of about $30 billion. By comparison, Ford’s market cap is $50 billion.

The bet was that once the shares are in the index, the real buying would commence by funds that track those indices and would therefore have to buy the shares. Given the relatively small number of shares traded, this buying pressure across the globe would push up the price even further. It was simply a matter of creating a lot of artificial demand. And investors were front-running that propitious moment.

But suddenly, there is doubt. Reuters reported:

A group representing large institutional investors has approached stock index providers S&P Dow Jones Indices and MSCI Inc., looking to bar Snap Inc. and any other company that sells investors non-voting shares from their stock benchmarks.

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