WASHINGTON, November 7, 2017 – Although we actually made a small profit on this year’s Snapchat (Snap, Inc., trading symbol SNAP) IPO, we bailed as soon as our broker’s protocol allowed. It was the right decision.
Snapchat, aka Snap, Inc. was only one of this year’s latest “unicorn” IPO companies that made sure its new shareholders had zero or effectively zero voting rights. That, in this writer’s opinion, is tantamount to taking money from investors and then giving them the finger. It’s also a sign of corporate arrogance, the kind of smug Silicon Valley pride that goeth before a fall.
As we noted in an earlier article, novelty product purveyor Funko (FNKO) recently played its own version of voter empowerment keep-away in its IPO offering last week. They buried potential shareholder voting power in a different way, by swamping the voting power of the offered shares with a bewildering series of additional classes of stock. These were available, of course, only to insiders and vulture capitalist sugar daddies, all of whom enjoyed enhanced voting rights to the tune of 10 votes per share.
As a reward for the company’s back-room machinations, Funko’s funky shares ultimately priced considerably below their posted, pre-IPO range. Then, they dropped like a rock when the shares actually opened for trading. My schadenfreude knew no bounds. I’d ended up passing on these obviously rigged shares.
Good. Maybe some of these hubris-infested clowns and puffer-pigeon whiz-kids will get the message that they’re not the towering geniuses they think they are.
Needless to say, Snap’s all-wise board room gurus have also proven to be Wall Street failures, at least early in the game. Snapchat, aka SNAP – effectively built on peddling the latest novelty-toy app for brain-dead millennials – appears to be the one-trick pony we thought it was.
Also, at least one big competitor – Facebook – has already concluded, the Snapchat app is easy to replicate without violating trademarks or patents. Oops. There goes the novelty effect, which was reflected in a Wall Street Journal article today entitled “Snap Shares Plunge on Weak User Growth”:
“The stock price is in retreat after the company put out third-quarter results that missed analyst forecasts. Shares, which closed out Tuesday’s session at $15.12, were down more than 16% in extended trading. The losses pare a steady rebound in recent months, and stand to bring the stock further below its initial public offering price from March, when shares sold for $17 apiece.
“The stock’s post-earnings plunge is becoming something of a quarterly tradition. Shares sank more than 14% on Aug. 11 to their lowest level on record after the company reported second-quarter earnings, which showed that Snap’s loss nearly quadrupled. And the stock dropped over 21% on May 11, after Snap posted a disappointing first-quarter report. Those two sessions remain the worst ever during the stock’s short lifetime.
“For the latest quarter, a key culprit was slowing growth in the number of daily active users. The company said it added 4.5 million daily users between July and September, lifting its total user base to 178 million.”
Snapchat aside, otherwise, it was a pretty blah Tuesday on Wall Street, although the stealth selling has continued in a variety of stocks all during the current “melt-up” rally we’ve been experiencing since roughly mid-September.
This leads us to retain our cautious stance on further buying here. True, we’re either at or nearing Santa Claus Rally season. That said, stocks have been bothered recently by the recent political troubles in Saudi Arabia, which has helped push oil’s price per barrel into the upper $50 range for West Texas International (WTI), a lofty level it hasn’t seen in quite some time.
Markets were also slightly rattled by Donald Trump’s choice of Jerome Powell to succeed current Federal Reserve Chair Janet Yellen in February 2018 when her current term expires. Powell will likely continue Yellen’s policies without much variance. But the Street hates uncertainty and that, coupled with the surprising recent strength of the U.S. dollar has also underpinned some of the recent nervous selling.
Also contributing to this week’s current malaise: uncertainty as to what, if anything, President Trump’s lengthy visit to East Asia will bring, whether it involves progress on trade re-negotiation or progress with both Russian and Beijing on reining in North Korea’s nasty little Rocket Man. No essential progress has occurred on this front since the inconclusive end of the Korean War, however, so we won’t hold our breath on this one.
This writing is still recovering from a persistent inner ear issue, so columns may continue to be spotty this week. But we continue to keep a close eye on Mr. Market, notwithstanding. Like most active investors, looking away from my screen during trading hours is rarely a good idea, as a market like this one can either soar or collapse without warning.
One thing we can all agree on, however: Avoid shares in Snapchat. Or Funko, for that matter.