What goes up…

Back in February of this year we stated in an article that, the IPO of SNAP, the parent company to the loved disappearing picture application ‘Snapchat’ was not going to be a great success.  So much for the rise in stock price of this technology darling.   If the prospectus for the company’s offering didn’t scare you, then its performance as a public company should.

As of today SNAP was barely above its IPO price and the date for the expiration of the first lock up period is drawing near.   Insiders can now start to sell part of their holdings in the stock.   Historically, that has created some down ward pressure on a company’s stock price.

Comparable stocks such as Linkedin, Facebook and Twitter all fell some twenty or more percent prior to their unlock periods.   That combined with an increase in shorting in SNAP has created even more downward pressure on the price.   Companies typically have an increase in shorting of their stock as they underperform and approach an unlock period.

The unlock play has been a standard trade in the long short world for many years.  There are no guarantees of a profit on these trades but the volatility can be quantified.   So the key is the entrance and exit points of the short while keeping in the mind the parameters of the stock’s market.  (Among other things)

This comes as SNAP is already reeling from a drop due to its filings and lack of earnings.  In its first quarter as a public company it has had over $2 billion in net losses.   That also adds to the company’s own prospectus for its IPO that stated the company may never actually have earnings.   Yeah it said that.

Has the illusion become reality ? It would seem so since all the high hopes could not save this tech darling from doing poorly as a public company.  Maybe, just maybe some companies should not go public?  Has the private equity world begun to realize that not every tech company can transition from private to public.   There is a cultural void that some companies can master and others cannot.  So keep that in mind if you are a tech start up considering the traditional private equity or venture capital route.

Furthermore, some companies may not be able to survive as public entities, where focus shifts from running an entrepreneurial business to that of financially reporting based business.   As a public company your survival depends on reducing costs, increasing revenue and becoming even more profitable.   (Not necessarily in that order)  But the focus does shift from the technology to actually running a business and that is where some businesses do not succeed.   As we have recently seen with the oster of Uber’s CEO.

 

One thing is for sure

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