Snapchat under renewed pressure as share lock-up ends

Snapchat
Snapchat has faced fierce competition from Facebook and Instagram Credit: AFP

Snapchat is set to come under further pressure next week when investors are allowed to sell shares for the first time since it went public in March.

The “lock-up” period that bars shareholders from cashing in on their stakes expires next Saturday, 150 days after the company’s initial public offering. 

It means they will be able to sell shares on the next trading day, Monday July 31.

Shares in Snap Inc, the photo messaging app’s parent company, have fallen below their $17 (£13.10) flotation price in recent weeks following a disappointing set of maiden results and fierce competition from Facebook.

The lossmaking company is facing questions about whether it can continue to attract users as Facebook-owned Instagram clones many of the features that have made it a success. It is under pressure to live up to the $24bn (£18.5bn) valuation it floated at in March, which came despite it being unlikely to turn a profit this decade.

Next Monday, early investors will be able to sell 400m shares worth around $6bn (£4.62bn), and two weeks later, another tranche of 782m shares owned by staff will be free to sell.

The end of the lock-up period will vastly expand the number of Snap shares available on public markets and be seen as a crucial test of both investors’ and employees’ confidence in the company.

During Facebook’s difficult early months as a public company, shares dropped after successive lock-up periods ending as staff scrambled to cash in, fearing that their stakes would decline further. Snapchat, which lets users post disappearing photos and videos as well as hosting short-form TV shows and news articles, is dominated by under-25s and has a loyal base of 166m daily users. Advertising revenues grew by 286pc in the last quarter, but a slower-than-expected increase in users disappointed Wall Street.

Snap is due to post second-quarter results on August 10. Analysts expect daily users to grow by 10m, an increase on the last quarter, but Evan Spiegel, the company’s chief executive, will be expected to show that the app is innovating to compete with Facebook and Instagram.

Both have copied the “Stories” feature, first popularised by Snapchat, which stores images on a profile for 24 hours before disappearing, and Instagram has surpassed it in the number of people who use the feature every day. Snap’s flotation was seen as a crucial litmus test for highly-valued “unicorn” start-ups as companies such as Airbnb, Spotify and Dropbox head for life on the public markets.

Snap’s decline comes despite technology shares hitting new highs in recent days. Amazon, Facebook, Twitter and Google’s parent company Alphabet are all scheduled to report second-quarter results this week.

Facebook’s chief executive Mark Zuckerberg recently announced the social network had reached 2bn users.

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