Opinion: Analysts Should Stop Comparing Snap IPO To Facebook, Stay Short Into Lock-Up Expiration

Written by Staff

On May 11, Moguldom provided 9 Reasons To Bet Against Snap Inc’s Stock. Back then the stock was trading at $18 at the time of our call to consider buying puts. The stock is now trading at $14.48, down around 24 percent.

Recently, analyst  Brian White, Drexel Hamilton’s global head of technology hardware and software told CNBC:

“I think it’s a great buying opportunity. If you look at a lot of high-growth companies, in the first three years after an IPO, they trade at nine-to-22 times enterprise value to revenue.”

 

White went on to suggest that Snap — the mobile app that lets users send and receive photos and videos that disappear — is likely to follow Facebook’s post-IPO dip and rise. Facebook dipped 60 percent after IPO and Snap is now down 48 percent, White noted.

This frame of reference is curious as Snap doesn’t show any material similarities to Facebook other than being an advertising-supported social media platform.

White forgot to mention that Snap is barely growing U.S. users and the end of the lock-up period is coming this week on July 29. An IPO lock-up period prevents insiders who are holding stock, before it goes public, from selling the stock for a period of 90 to 180 days after the company goes public.

Historical data doesn’t suggest it’s a good time to catch the falling knife when stocks are plummeting and there is a major lock-up expiration for executives and institutional insiders, giving them an opportunity to flood the market with stock.

S3 provided a guide for tracking how many shares will be freed up from the post-IPO lock-up constraints over the next few weeks, Business Insider reported:

  • July 29: 400 million shares from early investors
  • Aug. 14: 182 million shares from employees
  • Aug. 14:  600 million shares from directors, founders, insiders
  • Aug. 29: 20 million shares from early investors

White also forgot to mention how Facebook is crushing Snap by copying it with Instagram Stories, a feature that lets users post photos and videos that vanish after 24 hours. Facebook’s Instagram Stories now has more users than Snap.

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