In this segment from the Motley Fool Money radio show, host Chris Hill, Million Dollar Portfolio's Matt Argersinger, and Supernova and Rule Breakers' David Kretzmann discuss how experts view the situation at Snap Inc. (NYSE:SNAP), which is being really beaten up for a company so recently past its IPO.
A full transcript follows the video.
This video was recorded on July 14, 2017.
Chris Hill: Rough week for recent IPO Snap. The company got a couple of analyst downgrades, and shares of Snap fell more than 10%. Maybe even worse than the downgrades, a professor at NYU Stern School of Business said that investing in Snap is something that no responsible person should do, and he compared it to drunk driving. Wow. I mean, I'm not looking to buy shares of Snap, David, but that seems like a gratuitous shot.
David Kretzmann: It's a strong statement, but I don't know if I disagree with him at this point. Of those downgrades, I think the one that stings the most for Snap is Morgan Stanley downgrading the company. Morgan Stanley was one of the lead underwriters on the IPOs.
So this was a company that really brought Snap public, and within a few months they're basically saying, "This story isn't as great as we thought. We're going to downgrade the stock. We think it should go down." That's not a good situation for Snap to be in, especially just a few months after the IPO. Something else to keep in mind is, the lock-up expiration period happens on July 29, and that's essentially the time when early investors and insiders in the company will finally be able to sell their shares for the first time since the IPO. So you might see a lot of people cashing out, especially now that the stock is down a little bit. Maybe they want to get out before it goes down any lower.
Matt Argersinger: I was speaking to Ron Gross about that, that Morgan Stanley downgrade earlier this week. He made some good points about the fact that you rarely see that from a bank that just recently led the underwriting of new company. You tend to have to believe that a little more, if Morgan Stanley is willing to say, "We're making this call, even though we just led the IPO a few months earlier." Dire lookout for Snap there.