Shares of Snap, Inc. were valued at $16.99 when the market closed Monday, marking the first time the stock has dipped below its $17 IPO price since the company went public in March.
The drop comes as the market anticipates a massive selloff of Snap stock when a lockup period, which prevented investors who bought Snap’s IPO from offloading their shares, expires on July 29. At that point, more than 60% of Snap’s stock will become eligible to be sold.
Snap entered the public market with a $24 billion valuation, one of the loftiest ever amongst technology companies. Investors bought in, despite Snap’s 61.7 price-to-sales ratio. Following the IPO, the stock rose 41%, opening its first trading day at $24.
But when the company’s first public earnings report, published in May, came in below analysts’ projections, the stock dropped 25% almost instantaneously.
Since then, Snap’s market capitalization has fallen more than $10 billion, from $31 billion to $20 billion. Still, the market values the stock at 20 times the company’s expected 2017 sales, according to Fortune’s Jen Wieczner. When Snap publishes last quarter’s sales report later the summer, the stock is likely to drop even further.
When Snap’s new strategy to attract advertisers to Snap hit a snag earlier this year, Stephen Ju, an analyst for Credit Suisse, lowered his projections of Snap’s revenue last quarter: Credit Suisse no longer believes Snap’s 2017 revenue will crack the $1 billion threshold.
The financial analysis group dropped its target price for Snap from $30 to $25, but still gives Snap an “outperform” rating.
“While we were hoping for Snap to exhibit a more comfortable growth path, we are reminded that nascent companies sometimes grow in fits and starts,” Ju said in explanation of the drop in the target price.
The social media sector as a whole has performed well in the stock market over the last quarter. Since April 11, Facebook stock has risen 10%. Twitter shares have risen almost 30% since the same date.
The number of daily active users of Snap increased just 5% from the final quarter of 2016 to the first quarter of 2017. In the first half of last year, Snap’s user base grew about 15% per quarter, but it has grown an average of just 5% per quarter over the last three-quarters.
Many have compared recent investment trends toward social media and other technology sectors to the dot-com boom of the 1990s. People who have never before dipped a single toe into the stock market are snapping up technology stocks as though they have been investing for years.
Robinhood, a stock trading app, reported that 43% of those who traded on Snap’s first day bought shares in the startup social media company. The median age of those Snap investors was 26.
An overwhelming majority of Snap’s users occupy the 14-35 year old demographic, so it stands to reason that a sizable portion of the company’s investors are similarly aged.
“It’s hard to believe that such rookie investors would be equipped to successfully trade a stock like Snap,” Wieczner wrote in another article.
In the midst of a tech boom which has lingered on over the past three years or so, many considered Snap to be a sure thing, the next Google or Facebook or Twitter.
But given May’s sales report and the further disappointment expected when Snap publishes its quarter two earnings later this summer, it appears Snap’s bold IPO wrote a check it could not cash.
Investors, many of whom will have their first opportunities to sell their Snap stock when the lock-up period ends on July 29, are demanding what’s left of their money back.