Snap shares fall below IPO price for the first time

Shares of Los Angeles technology company Snap Inc. on Monday dipped below the original price at which they were sold when the company went public in March.

Snap shares traded as low as $16.95 before closing at $16.99, down about 1.1%. The company went public at $17.

Falling below an IPO price for the first time is a common occurrence. It happened to Facebook. It happened to Twitter, Tesla and Fitbit. And by various accounts, half of publicly traded companies sit below their initial price for extended periods.

But it remains a worrisome signal to investors, one that points to waning confidence in the Snapchat app-maker’s ability to deliver on promises of increased usage and ad sales in the coming years.

Snapchat reports 166 million daily users of its service, which includes short photo and video messages that automatically delete after viewing. But investors fear that competition from Facebook-owned Instagram is cutting into Snapchat’s popularity.

Snap, which didn’t immediately respond to a request for comment, hasn't announced when it will release financial results for the second quarter.

In Snap’s defense, the drop in share price comes as investors rethink their bets on tech companies across the board. Though few financial experts appear to doubt the potential of Facebook, Alphabet, Microsoft and other huge tech businesses, fund managers have raised concerns about whether the prices they’ve paid to get a stake in the firms is too high.

Enough investors have been skeptical to drive down prices in recent days. The technology sector within the Standard & Poor’s 500 index has dropped about 3% since the start of June, after returning more than 20% during the first five months of 2017.

Shares of Snap, a 6-year-old tech company that doesn’t generate profit, now trade for 32 times its sales, compared with an average of about four times sales among the S&P 500’s tech constituents, according to FactSet data.

Financial analysts more bullish about Snap's prospects say now is the perfect time to buy shares because going back to $17 creates a second IPO in effect. Individuals and other small-time investors who didn’t have a chance to get shares the first time around — as Snap focused instead on major institutions — may find the opportunity especially attractive.

“I want to own it here," Brian White, an analyst at stock brokerage Drexel Hamilton said on CNBC last month.

But Snap's share price may yet fall further as investors brace for an increase in supply of stock beginning as early as July 29. That’s when the lifting of trading restrictions on shares held by employees and others prior to the IPO is expected to start pushing the number of shares eligible for sale to about five times the amount currently available.

The end of such lock-up agreements after an IPO usually coincide with a slide in price in preceding weeks because investors guess at least some in the company ranks will sell, according to financial analysts. It's unclear, though, if any Snap executives or venture capital backers plan to sell.

Many of the shares expected to be newly eligible for trade are held by Snap co-founders Evan Spiegel, the chief executive, and Bobby Murphy, the chief technology officer. Other big owners include Benchmark and Lightspeed Venture Partners.

Snap is being sued by shareholders who allege that the company provided misleading Snapchat usage statistics in the run-up to the IPO. The company denies the claims.

paresh.dave@latimes.com / PGP

Twitter: @peard33


UPDATES:

4:15 p.m.: This article was updated to include a comment that Brian White, an analyst at the stock brokerage Drexel Hamilton, said on CNBC last month.

This article was originally published at 1:35 p.m.

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