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

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.

While other large companies, most famously Facebook and Alphabet, have issued some non-voting shares, in addition to voting shares, shareholders can still vote, though only in watered-down form. Snap pioneered a new thing: selling only non-voting shares in the IPO, and public shareholders cannot vote at all.

These are the three classes of Snap shares, but only Class A shares were sold to the public:

  • Owners of Class A common stock have zilch votes per share.
  • Owners of Class B common stock (certain early investors) have one vote per share.
  • Owners of Class C common stock (co-founders Evan Spiegel and Robert Murphy) have 10 votes per share.

The structure leaves the two co-founders in total control. Class A shareholders have no say whatsoever on the company’s strategy, the pay of its executives, the board of directors, and whatever else the owners of a company would want to have a say over.

What Class A shareholders got for their money, in addition to the financial toxicity of the deal, was the hope and hype of the stock’s inclusion in the indexes.

But now both index providers, the S&P Dow Jones Indices and the MSCI USA Index, said that they’re reviewing Snap’s inclusion.

“What we would like to see at the least is for the indexes to exclude new no-vote companies,” Amy Borrus, deputy director of the Council of Institutional Investors, told Reuters. The Council represents pension funds and other large asset managers. Meetings with both index providers are scheduled this week, she said.

Reuters added:

David Blitzer, managing director of S&P Dow Jones Indices and chair of a committee overseeing its indexes, said they would not add a new stock like Snap for 6 to 12 months after its IPO in any case, and will use the time to study Snap’s structure.

While the index provider does not have a hard requirement about a company’s voting structure, the committee needs to think through how much influence investors should have, Blitzer said in an interview on Monday.

“‘Who Votes?’ is the issue right now,” he said.

To be included in the S&P 500, Blitzer said, the company normally needs a market capitalization of around $5.5 billion and four profitable quarters in a row. That latter condition pretty eliminates Snap’s chances of making it into the S&P 500 index in the foreseeable future.

On March 2, MSCI said that Snap would qualify for inclusion in its MSCI USA Index. But on Friday after the markets had closed, and when no one was supposed to pay attention, MSCI changed its mind and announced:

Following additional analysis, the IPO of SNAP (US) did not meet all of the relevant market capitalization requirements required for early inclusion into the MSCI USA Index.

Therefore, and in accordance with the MSCI Global Investable Market Indexes methodology, SNAP (US)’s inclusion into the MSCI USA Index will be re-assessed as part of the next Semi-Annual Index Review, which occurs in May 2017.

MSCI “seeks feedback from the investment community” on whether or not companies without voting rights should be included in its indices.

What’s left for Snap after the index-hype has deflated? Plenty of other hype. And it might still blow over. Because hype is still in plentiful supply in this wondrous stock market.

Update: Noon-ish Tuesday, March 7: Snap now down an additional 11.5% to $21.00.

So how long before the stock market hits the wall? Read… This is Worse than Before the Last Three Crashes

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  61 comments for “Investor Group Attacks Snap’s No-Vote Shares, Stock plunges

  1. Jungle Jim says:

    And then they wonder why Mom and Pop think the market is rigged.

    • Mary says:

      Although there’s an interesting opinion piece on Marketwatch claiming that it’s Trump’s “Mom and Pop” supporters who are behind the market’s run up. Not sure I buy the logic, but it is intriguing.

      • Jungle Jim says:

        Mary, I saw that but I remain skeptical. I’m an old coot myself and the first thing I learned many years ago was that you should never put money in the Stock Market that you couldn’t afford to lose. After eight years of depredations by the Fed, most of us don’t have money we can afford to lose.

        • Sonomendo Steve says:

          There are a lot more of the “fewer” rich people that CAN afford to lose money than 30 or so years ago. I know that sounds weird, but gross levels of overall wealth/income inequality make it possible.
          Our fellow boomers account for many of them, maybe most all.

      • Meme Imfurst says:

        Marketwatch is another cheerleader for brokers, nothing more.

        Mom and pop are broke, the central banks are not, simple.

        Snapchat…go there and ask yourself ‘what is so special’. It is great if you want to observe boys and girls who have a very small clue about 99.9999999% of everything but can’t express it in understandable language.

    • alexaisback says:

      The recent run up is not mon and pops..
      The recent run up is shorts caught
      by computer algo’s causing frenzy.

  2. david says:

    First time I shorted an IPO right off the bat. Came out worth more than SONY? pfffttttt Could be dangerous though as the stock market hasn’t traded on valuations in quite a while.

  3. Drain the swamp, eh, SNAP?

  4. TheDona says:

    The irony is it is supposed to eventually make money as an advertising platform catering to the Millennials. Why advertise if nobody is buying much of anything? Most of the bigger conglomerates have already said they are pulling back on social media spending.

    I do have to give props to Even and Robert for their chutzpah. Can’t wait to see how this goes off the cliff.

    • Petunia says:

      Comcast bought into this IPO, the reported amount was $500M.

      Comcast owns NBC and they are probably afraid that election advertising will be down considerably in the future, due to Trump winning with low spending, and Hillary losing with high spending.

      Snapchat gets them into the internet advertising sector and gives them a way they can capture a younger demographic. Whether this turns out to be a good hedge for them remains to be seen.

    • Suzie Alcatrez says:

      No way SnapChat ever makes money via advertising.

      Their user base is flat. They are just like Twitter.

      At least they are not losing as much money as Uber.

      • Gary says:

        I still don’t understand how Snapchat loses $500 million a year. Don’t they just run a bunch of servers?

      • Copernicus says:

        Suzie Alcatrez

        No way legit companies will advertise on this medium.
        Who could blame them?
        Who in their right mind would advertise next to dissapearing dick pics?

        If that medium was seen as legit the massive porn sites with record setting traffic would see stalwarts of industry advertising on them. They don’t.

        • Copernicus says:

          Probably a good time to look at the television stations.
          Snapchat debacle, may remind Suits why they were attracted to curated environments on which to advertise their wares, in the first place.

    • MC says:

      If you are a company advertising online there’s one thing you want to see before the number of pages visited, number of users etc: clickthrough rates.
      Clickthrough is the rate between the number of times your ad is displayed and somebody clicking over it. In short it’s the only parameter that truly matters to see if advertising is working.

      Clickthrough rates have generally been declining all across the field, even for giants such as Google and FaceBook, over the past three years. Ad blockers are doing their part, especially among Millenials (who account for a massive 40% of all ad blocker users), but it’s beyond doubt something broke in how ads are displayed to potential customers.
      The fabled algorithms supposed to taylor-made ads to viewing habits either don’t work as well as advertised or take second place to bidding, even if all those involved know it will be a waste of time and money.

      Snapchat has always had issues with clickthrough rates: Instagram has always been better despite being part of the FB Empire whose clickthrough rates are nothing to write home about.
      Snapchat, together with other clickthrough Cinderellas, has long maintained that “clickthrough rates don’t matter as much as you think” but offers little more than the usual spin on user numbers and pages loaded, not including, for example, how much of that traffic goes through ad blockers, a data all advertisers know very well but keep for themselves, or how many of their ads are “watched” by bots, something they should know even better.

    • Mel says:

      ” Why advertise if nobody is buying much of anything?”

      If nobody is buying then vendors will be desperate to advertise, amirite?

      If the future of society lies in gaming index funds, so that they have to buy at the top and sell on the collapse, then I’m starting to get really scared. Remember the last big one, when that guy constructed derivatives specifically so he could short them? It’ll be like that everywhere.

      • Sonomendo Steve says:

        Agree…..on new financial engineering game…….It scares me about the future almost as much as Private Equity itself does.

        And, in a way, it’s kinda like “privatizing a public investment”…..or at least taking a “private cut out of existing ones”

  5. James says:

    They were saying on stocktwits that you can’t short shares until tomorrow.

  6. Bobber says:

    Based on the 5-day chart, it doesn’t look good for tomorrow either.

    • OutLookingIn says:

      Tomorrow is here! And…

      Snapchat is now trading below its post IPO price. Which means anyone who bought into Snapchat at issue, is now underwater.

      Sounds like a great short to me so far, with much more to come!

  7. Patience says:

    I love the supposed old investors thinking they are duped… lol. I’m going to live off my interest, happy day, cue music. Now anyone born into unaffordable housing, vehicles, etc, I feel your pain! We are not the moms and dads basement dwellers. We are super hard working folks that are in are early thirties and working just as hard or harder than you when you hit this time,. Now realize as we save we get nothing or a lottery. No 5-7 percent return like you enjoyed. Wish older folks could just realize how overinflated the world really is, it’s just insane.! No comparison if I lived in your day. Maybe you should run the numbers…

    • TJ Martin says:

      Look son … and I say that with no disrespect being your elder by some 30 years or more . Many of us do get it . We see all too well how hyper inflated the world is today . Not to mention how much of a Potemkin Village / Emperors New Cloths the economy really is . And to be blunt … it is beyond insane to the point of outright chaos . Honestly not a day goes by when I do not count my blessings that I came up when I did as well as the position I was able to attain before this current madness ensued .

      But trust me son .. though yours is a godawful mess .. much of it self created I might add .. ours was no cakewalk either . Yuppies – Nixon – Reagan’s Trickle Up to the Wealthy’s Back Pocket theory – Viet Nam – Racism – Watergate – Kent State – The Weathermen – Iran Contra scandal – Hoover’s FBI – Domestic Terrorism etc * . So don’t make the mistake of thinking our time was so great and I’ll for one commiserate and empathize with the downside/upside down house of cards you’re living in . Suffice it to say every era has its challenges and this is one is yours . Just remember one thing . You cannot remedy the symptoms of evil with evil itself

      * I’d add drugs to the list but in my opinion this era’s drug problems are worse than the 60’s – 70’s ever were

      • Sonomendo Steve says:

        Patience, I was there. And you are absolutely right, not much comparison AT ALL. Most all of us had it pretty easy…at least those who looked European. Sure, most had to work hard (find me someone who will admit they had to “work easy”), but folk’s house dwellers were usually by their own choice w/parent ok, or w/disabilities. I never knew any….except while going to cheaper JC’s. And I knew some who were tossed out, at 16,17,18. Roomates? Plenty of that going on. Cops didn’t hassle kids living in vans here then, either…I did for 5 yrs. Our biggest bummer was Vietnam, for those of us who were in country especially, and those who came back boxed or trashed, and those who loved either. I won’t put all the blame for today’s econ problems on people not listening to Carter and then embracing idiot Reagan….but quite a bit of it I will. That said, recently many boomers have had to downsize lifestyles a lot, I’m one, so what? Many your age and younger around here would love to share a 525 sq ft apt like mine, and the luckier ones do.

        Good Luck to you, and DON’T get tricked into fighting each other, you are ALL in it together.

        • Sonomendo Steve says:

          PS- We had a saying for a while, “Never trust anyone over 30”.
          You might want to look at politicians sort of the the same way, maybe allow 40, should they emerge. Or become one (or encourage a friend) yourself.

        • d says:

          ” “Never trust anyone over 30”. ”

          Was that not anybody over 40

          A big fuss was made in various MSM outlets, when, the “never trust anybody over 40” Hippy Vietnam, Segment of the boomers, (Of which Mr “I did not inhale” ( was a member)) turned 40.

        • Sonomendo Steve says:

          I was on Haight St summer ’66 to Mar ’67 and I can assure you it was 30.
          But then as they say, if you remember that scene clearly you weren’t there.

  8. KSFO says:

    Did these dudes just figure this out!?! SHEESH!! Wolf, had they should have read your Feb 3 article about this P.O.S…….Caveat Emptor!

  9. NotSoSure says:

    Oh come on, there will be a Snap Back soon enough.

  10. NotSoSure says:

    Also no worries. The Muppets ARE BACK when it comes to buying stocks. On one hand, they can’t afford to write a 500 dollar check:

    But then they go ahead and plow money into stocks:

    And the Millenial Muppets buying SNAP stock:

    God Bless America. This country is already great.

  11. alex says:

    SNAP right price 10cents/share with market cap 140-150M. Why not? Negative earnings, revenue less than 400M. All media stocks are overheated like dot.coms in 2000. Just think about the fact: FB is more expensive than all auto and air craft industry in US. Have you ever seen such a deviation from a common sense in history? If tomorrow FB vanishes economy and life will continue. Can you imagine what will happen if all transportation disappears?

    • Guido says:

      Let me guess what happens if transportation disappears — the multitude of food delivery start ups will fail?

  12. d says:

    A snap is involved.

    Its the sound of fools money, disappearing out of the country in this wrought.

    The people who brought at 17 probably sold at 25 plus on day 1 and walked, some day traders made something on day 2. Now its “over rover.”

    This whole IPO is almost classifiable as a short cycle “pump and dump” IMHO.

    • r cohn says:

      Many people who were allotted shares in the IPO agreed NOT to sell the stock for at least a year

      • d says:

        “Many people who were allotted shares in the IPO agreed NOT to sell the stock for at least a year”:

        And they were all small, and not “insiders”.

        What those sales restrictions do, is stave off the big public sell off date.

        This who snap deal, is simply more American legalised fraud. In the case of the snap deal, it is to obvious, even for the indexes

  13. Si says:

    Standing on the sidelines gives a view of the game that the participants can’t see. It was so obviously structured to appeal to suckers. “Class A” shares with no votes, and class “C” with 10. Hahahahahahahaha!!!!

    • Mel says:

      It’s a known technique.
      A company that I was in, at folding time, offered me Class A Preferred non-voting shares with a guaranteed percent of the profit as dividend.
      What is profit? Profit is revenue minus expenses.
      What is revenue? Revenue is what the customers decide to bring in.
      What are expenses? Expenses are what management decides to spend.
      Going forward, management would have owned all the Class B common shares. My lawyer overcame my sentimental objections, told me to get them to put some money on the table, and take it, and get far, far away. It was good advice.

  14. Guido says:

    The real travesty is for the employee who worked hard and took a pay cut hoping he’ll retire after this. The chiefs will plunder and the employees will find their options worth less than TP. Worse, some of these early investors will go buy apartments and jack up the rent of the poor employee.

    Also, don’t the employees get to sell their stock along with other investors in 3 months’ time? If true, sit back and watch the stampede for the exits.

  15. mvojy says:

    AOL stock has more upside at this point

  16. DC says:

    Keep on eye on Miranda Kerr…if she dumps Speigel in the next 30 days you know SNAP is about to crash…she has expensive tastes and women can spot a failing sugardaddy a mile away

  17. Wolf Richter says:

    Update: Noon-ish Tuesday, March 7: Snap now down an additional 11.5% to $21.00.

    • OutLookingIn says:

      Topsy Turvy?

      The ratio of insider sales to buys stands at 45:1
      This current insider selling trend started in mid-December 2016
      while the Daily Sentiment Survey of Futures Traders now shows a 92% Bulls reading! Over exuberance? Certainly looks that way. Those in background have filled their cash bags and have exited the building!

      • OutLookingIn says:

        Gallup just released their findings from their latest consumer poll;
        Consumer spending highest since 2008
        As economic confidence hits a new record high!

        Blow Off Top? Certainly looks that way.

        • TJ Martin says:

          Uhh … yeah .. seems to me Gallup’s credibility has gone straight to hell in a hand basket after the travesty of the 2016 election . So why would we trust them when it comes to consumer confidence and spending ? More importantly . Who even responds to polls these days ? I and my household certainly do not !

  18. Walter says:

    Does SNAP remind you of Twitter 2.0? People need to consult with Aswath Damodaran (Valuation professor at NYU) because he got Twitter’s valuation right when others were hyping it to $100/share.

  19. robt says:

    That’s the model pioneered in Canada, when families issued non-voting shares in family businesses. They like to sell something but still own it.

    • d says:

      “That’s the model pioneered in Canada,” ????????

      Porsche and several other Austrian and German entity’s Including VW before that. Long ago

    • d says:

      Difference being they were profit making companies with a good track record of such. Everybody wanted a piece of, when they issued the non voting shares.

    • Sonomendo Steve says:

      So it is another (and according to d, not new) PE game.

      • d says:

        sec 2.1.2


        and check the dates of the documents.

        Such is allowed in other jurisdictions also.


        This is a financial blog.

        Just like any human, I make mistakes.

        Unlike many with an agenda. I am not in the business of knowingly posting falsehood’s to support an agenda.

        • Sonomendo Steve says:

          I sure never meant to imply any, nor do I see any, mistakes, falsehoods, or agendas on your part, d. Frankly that 2.1.2 was real headache read, and this no vote share thing remains spooky to me.

          Unless this no-vote “preferred dividend” status has some benefit I don’t understand, I still fail to see why anyone would want a share without a vote. If I bought VW (via ADR). Could I get one of these forced down my throat, or would I have to request it?

          Anyway, I still remain scared of PE, it controls too much of our lives, and a no vote share sure looks like a form of it to me. You might get a good dividend, but you have no say in the action.

          Like being the dummy hand in bridge, maybe a win, but no say in how it’s won.

          And I quit playing with stocks, anyway. So, sorry I offended you, words are not as accurate as people often think…..far from it.

        • d says:

          You didnt offend me.

          “Unless this no-vote “preferred dividend” status has some benefit I don’t understand, I still fail to see why anyone would want a share without a vote. If I bought VW (via ADR). Could I get one of these forced down my throat, or would I have to request it? ”

          When an entity has no vote, or different vote shares, you need to ascertain what you are buying, before you order, “Caveat Emptor”.

          The purpose of no vote, is to get investors money but give them no say in how the company is run. With some big stable company’s, it lets small investors in safely (at a lower entry price), as the no vote shares generally have a lower value/listed price. It also protects the companies from activist, asset stripping fund’s, Ican Etc, when raising capital.

          Porche VW is like that to keep controll in Germany/Austria, and in particular, the two or three states that have the major VW Assembly plants, the union and state Governments, are BIG Voting share holders, along with the owners.

          Patriotic German’s and Austrian’s. Buy VW non vote for their Children, Grand Children, as it is seen as a blue chip investment (they can afford (if they can get them)) with a guaranteed payout annually.

          In the case of snap, its a ripoff, no say, and a declining value. If snap survives, the vote and no vote, should start trading at different values, VERY soon. They should also be listed/quoted as such.

          As for anybody who wants a say in snap, no vote, are worthless.

  20. R2D2 says:

    Let me add this; facebook is the King of all these social media companies. Although, I had created a couple of Facebook accounts in the past, but I had never really used them. For the last few days, I tried to use it to find out what does it really do for people who are on Facebook. I can summarize Facebook as the following: “A sophisticated version of chat rooms”. A sophisticated version of chat rooms with the market capitalization of $396.79 billion. Are you kidding me? This company isn’t worth even one billion. These other little players such as snapchat are worth far less.

    • R2D2 says:

      I forgot; all I see is a bunch of people posting their photos for self-gratification, and a bunch of other bored people around the world with nothing to do liking or loving the picture of these people who are trying to get a confidence boost by posting their pictures. Is that really worth $396.79 billion?

      Let me add my picture to Facebook right now, and send the stock soaring to $596.79 billion :-}.

  21. chris Hauser says:

    “wishing you all the best of good buys”

  22. Kevin Beck says:

    I have stated before, and will again, that companies that issue non-voting shares as the major component of float, should not be eligible for inclusion in any index. These “shares” are really just tracking shares instead of ownership shares. They hardly represent ownership of the company, since the holders of the shares have almost no rights. They don’t have preference for dividends or in liquidation, which makes them worth less than preferred shares. I would prefer that they be refused listing clearance by the exchanges, but that might be too extreme.

    • d says:

      “I would prefer that they be refused listing clearance by the exchanges, but that might be too extreme.”

      Other exchanges, make them list the non/restricted vote shares, separately, where they generally trade at much lower values.

Comments are closed.