Analysts and Investors Worried about Snap Inc.’s Share Structure and Investment Value

After one week of strong opening of Snap Inc. IPO, some market experts in New York suggest that their shares might be a bad long term investment. On day one, the stock spiked to 44% and on that week’s Friday it ended at $22.04. Their market capitalization after this was about $26 Billion.

Even if the start of Snap Inc. was furious, things have settled down now. The stock price last Monday traded at $23.77 and last Friday stock closed at $20.04.

The drop of $7 looks small, but if the outstanding shares figure of 1,157,270,170 after the filing with SEC of $1 by the company is used, this decline is as high as $8.1 Billion.

Doman Group CEO and Managing Member, Mark Doman managing $200 Million in assets for professional athletes, entertainers and entrepreneurs, is one of the experts who raised these concerns.

He commented that the company is experiencing a slow user growth and when this happens, the company should have a steady pace in their lifecycle. Adding to this is that only a small fraction of users provided the majority of the traffic.

He also added that the losses of Snap Inc. are larger than their sales and they are not profitable, not even at the gross profit line. This clearly tells us that the company costs for the service exceed even before they can start generating advertising sales. The math clearly doesn’t add up.

Snap Inc. prospectus states that there are no voting rights to even the Class A shares, which is another red flag for the investors. This clearly means that the shareholders would have no say in board matters, compensation of the executives or the direction of the company. It is also quite possible that the shareholders are not even made aware of what happens in the company.

Snap Inc. has three stock classes – Class A, Class B, and Class C. Class A shareholders will be invited to the annual shareholder meeting to pose questions, but they cannot vote. Class B shareholders would have one vote each. These stocks are reserved for executives of the company and early door investors. Class C shareholders have ten votes each and these are exclusively retained by the co-founders Evan Spiegel and Bobby Murphy.

Because of this, CTO Murphy and CEO Spiegel would be holding about 88.5% overall voting power of the company. Almost all the major decisions like deciding board members and possibility of a sale will be done by only two people.

Snap Inc. would have to make regulatory filings to inform their investors how the company is performing mandatorily, but this stock is risky as you are putting all your trust in the current management of the company and would have no say in the company’s direction.

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