Snap shares plummet 12%, investors unhappy with voting rights

A woman wears'Snapchat Spectacles on the floor of the New York Stock Exchange

Snap Inc.'s Initial Public Offering, or IPO, priced each of its 200 million shares at $17 USA each, bringing the overall worth of the company to a grand total of $3.4 billion.

"Although other US -based companies have publicly traded classes of non-voting stock, to our knowledge, no other company has completed an initial public offering of non-voting stock on a USA stock exchange", the filing said. That means these Wall Streeters believe the shares, which closed at just under $24 on Wednesday, could go as low as just below $18 in the next year.

Mike Loewengart, E-Trade's vice president of investment strategy, wrote ahead of the week that "w$3 ith the excitement of the Snap IPO heating to a boil, investors are wise to let the hype cool once it hits the public markets".

The other group of investors who stood to gain from the hype were those investors who chose to "short sell" the stock.

"In many ways, Snap is a test to see if new ad-supported networks can emerge and grow when they are competing for dollars with Facebook and Google, which account for more than 80 per cent of the market", Lang said. By Dec. 2013, Twitter's stock was priced at $69 per share.

With an IPO, borrowing shares is harder and more expensive but is certainly possible. In light of its stock waning down on the third trading day, some investors are beginning to suspect if Snap's outperformance of big companies is warranted.

It's important to note that it's still early to forecast Snap's market failure, and it's a definite possibility that it could pick up steam again at some point going forward. So how should investors play SNAP stock from here? Martin noted that Snap's offering was more like a lottery.

But people who bought shares in Snap, like this Uber driver, don't need to fret quite yet. The company already has a valuation that is nearing $70 billion.

Snap has maintained that keeping control concentrated among the founders allows Spiegel - widely regarded as one of the best product thinkers in the industry - to evolve the company according to his vision. Uniquely in modern IPOs, the founders and advisers have made a decision to sell shares to the public without voting rights. The data shows that companies that used this approach to share ownership performed significantly worse than companies that didn't.

Snap is a camera company. Not all analysts are able to give their opinion on the stock yet, since those who work at banks involved in the IPO are prevented from doing so for a while.

This dynamic is probably part of the reason why the American IPO mechanic continues to disadvantage IPO-ing companies - shareholders are most exuberant when their companies are getting screwed over the most.