Technology

Snap shares fall by almost 10% as short sellers move in

Snap’s $3.4bn public listing and slowing user growth have raised eyebrows on Wall Street

Specialist trader Glen Carell (right) gives a price for Snap Inc during the company’s IPO on the New York Stock Exchange on March 2nd. Photograph: Brendan McDermid

Tue Mar 7 2017 - 22:04

Snap Inc's shares tumbled as much 13 per cent on Tuesday and were down almost 10 per cent int the US close, adding to Monday's sharp losses. Investors raced to position themselves to cash in on further declines as analysts gave the company a lukewarm reception following its red-hot market debut.

Snap’s $3.4 billion (€3.22 billion) public listing last Thursday was the hottest technology offering in three years, but its lofty valuation and slowing user growth have raised eyebrows on Wall Street and attracted traders who expect its shares to fall.

Institutional traders were paying annualised interest rates between 20 per cent and 40 per cent to be among the first to short-sell the stock, according to S3 Partners, a financial analytics firm.

The owner of messaging app Snapchat is not profitable and has warned it may never be.

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Much of last week’s frenetic trading in Snap has yet to settle, making it difficult for brokers to estimate how many shares are available to lend to short sellers. But early data suggests brokers are facing a “chaotic” lending environment, with early short interest approaching $200 million, said S3 Partners managing director of research Ihor Dusaniwsky.

Likely acceleration

“This is the first couple of days of shorting data to show up, so I’m sure this is going to get bigger quickly,” Mr Dusaniwsky said.

Short-sellers borrow and then sell stocks they think will fall in value, hoping to profit by buying the stock back more cheaply later on and then returning it to its owner.

The interest rates brokers charged for Snap shares on Tuesday suggest demand is extremely high and that those borrowing the stock expect its price to fall steeply.

In its market debut, Snap surged 44 per cent from its $17 initial public offering price to close at $24.48. Since then it has fallen by some 20 per cent. As US trading on Tuesday, Snap was down by almost 10 per cent .

Snap has been heavily traded since its market debut, rolling over the number of shares sold in the IPO more than twice.– (Reuters)

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