Snap shares tumble as short sellers move in

Tue Mar 7, 2017 8:24pm EST
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By Noel Randewich and lance tupper

SAN FRANCISCO/NEW YORK (Reuters) - Snap Inc's (SNAP.N: Quote) shares tumbled 12 percent on Tuesday and traders raced to position themselves to cash in on further declines after analysts gave the company a lukewarm reception following its red-hot market debut.

Snap's $3.4 billion public listing on 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.

Opening up the potential for more volatility, the company's underwriters have exercised an over-allotment option to buy an additional 30 million shares, bringing the total IPO to 230 million shares, according to two capital markets sources familiar with the deal.

That means Snap's bankers would no longer be in a position to stabilize its shares by buying them should they fall below their $17 IPO price.

Institutional traders were paying annualized interest rates between 15 percent and 40 percent 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.

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 $300 million, said S3 Partners Managing Director of Research Ihor Dusaniwsky.

"This is the first couple of days of shorting data to show up, so I'm sure this is going to get bigger quickly," Dusaniwsky said.   Continued...

Traders gather at the post where Snap Inc. is traded on the floor of the New York Stock Exchange (NYSE) in New York, U.S., March 6, 2017. REUTERS/Brendan McDermid