Why has Snapchat’s Share Price Dropped Below its IPO Price?

In recent years there have been many highly publicised technology companies that have gone public. Some have achieved massive success such as Facebook while others have struggled to meet the hype.

Snapchat is one of those that have struggled since they went public and currently their share price is below the IPO price of $17. It was only in March that the IPO was held and it is a worrying trend for investors.

There are a couple of different reasons for this downfall and many are wondering what they can do to recover from this downward trend.

What exactly is Snapchat?

Snapchat first came to prominence as a social media platform that allowed users to send pictures and videos to their friends which would disappear after a few seconds. They gradually introduced further features such as live video chat, instant messaging and filters.

As of March 2017 there were 100 million daily active users of the app and every second there was 8,796 photos shared on the app. It became a platform that allowed celebrities and brands to market themselves effectively thanks to the high level of attention and engagement that exists among the user base.

What has changed with Snapchat?

While Snapchat was achieving a lot of success and growth, Instagram has stolen a lot of their thunder in recent months. This has led to a stagnation of growth and even a decline in certain metrics.

Instagram effectively ripped-off Snapchat Stories feature by introducing their own version of it. The functionality of this feature is largely the same and they have also begun to copy more of Snapchat’s features such as their funny set of filters and disappearing messages.

They are a massive threat to Snapchat as more and more people are moving towards solely using Instagram.

There have also been issues when it comes to their advertising abilities. Investors were hoping for a lot more growth in this area that hasn’t materialised.

What does this mean for the share price?

Those people who bought into Snapchat on their IPO have now lost money on their investment. They opened their initial trading day at $24 so those people who bought shares during this time will have been burnt even more.

Since they reached a mark of $25, they have lost over $10 billion in their stock market value with the market cap now sits at around $20 billion.

It is believed by many in Wall Street that some of the biggest shareholders are looking to offload their stock in the near future and this will have contributed to the decline in share price.

This comes as a result of the lock-up period that exists following an IPO. This means that those IPO backers are unable to sell their stock until this restriction is lifted on the 29th of July. Pre-IPO investors will also be able to sell their stock on this date.

Credit Suisse have estimated that up to 60% of Snapchat stock may be sold as soon as the lock-up is lifted.