Snapchat has managed to usurp Facebook, Twitter and Instagram to become the most important mobile app to young people, an important accolade that signals its extraordinary popularity.
Snapchat has grown so rapidly in the past few years that its rivals have been unable to keep up. Most have turned to simply copying its features, implementing their own versions of Snapchat concepts such as Stories without even trying to add a unique element. Snapchat has forced the established market leaders onto the defensive and this was in part responsible for its opening stock price of $24 per share.
After soaring to above $28.50 on its second day of trading, parent company Snap collapsed on Monday to $23.77, below its opening price. It fell 12 percent during the day and rumbles of doubt began to spread between investors.
As Reuters and Business Insider report, Snap’s public shares don’t provide any voting powers, a fact a group of large institutional investors has taken offence to. Snapchat is the first company to sell only non-voting shares during its IPO.
The investor group wants to bar it from the important S&P Dow Jones Indices and MSCI Inc. stock indexes for refusing to give buyers a say on the company’s actions. Given that Snap was relying on these indices to ignite sustainable interest in its stock, getting locked out could be a serious roadblock.
The deal cut out for public investors doesn’t include any direct involvement with Snap’s operations. The devised stock structure sees co-founders Evan Spiegel and Robert Murphy retain complete control of the company through their Class C stock worth 10 votes per share. A few select early investors hold Class B shares worth one vote each. Everyone else, including all investors who bought shares in the IPO, obtained essentially useless Class C stock.
With no input on the company’s future and little hope of Snap turning a profit anytime soon, the selling momentum behind the Class A stock has been the belief Snap would be included in the critical stock indexes. Because relatively few shares were sold during the IPO, funds tracking the indices and being forced to buy shares would create worldwide buying pressure and trigger artificial demand, driving up prices. Now this may never happen.
Snap is also still surrounded by its other issues, including the very rapid deceleration of user growth. The company appears to be reaching its maximum size and is beginning to struggle to attract new users. Although it currently dominates messaging apps among young people, that could change if a new upstart – like Snapchat itself a few years ago – appears with another winning concept.
Snapchat is no longer such a disruptive force either. It’s telling that its user growth first sharply declined after Instagram unveiled Instagram Stories, an essentially identical clone of Snapchat’s feature of the same name. It suggests people aren’t really interested in Snapchat itself, valuing its features more when they’re available on other platforms. Snapchat has been unable to demonstrate it has a plan for retaining users and continuing to grow, prompting further investor worries.
Competition is appearing from new, unexpected corners too. Today, Norwegian messaging startup Gobi raised $500,000 of funding to continue building an app designed to rival Snapchat. It focuses on group messaging and collaborative interactions, an area Snapchat is yet to target.
