Short sellers knock £1bn off Snapchat

Hedge funds swoop on struggling tech firm

by Victoria Ibitoye MORE than £ 1bn was wiped off the value of Snapchat last night as hedge funds bet against the social media platform’s success.

The mobile phone app’s parent firm, Snap, which has had a tumultuous time since listing on the New York Stock Exchange in March, is being ‘short sold’ by hedge funds – meaning they stand to make a fortune if its share price falls.

Traders believe it cannot grow quickly enough to justify its initial $24bn valuation.

Yesterday Snap shares slumped by as much as 6.4pc to $18.30, the biggest intraday decline since May 11 when Snap’s first earnings report since its float showed it had missed user growth and sales estimates. They closed yesterday down 3.6pc at $18.85.

It came as research found that bets made against the company’s stock price had climbed to more than $1bn.

Around 28pc of shares in Snap are also believed to be held by short sellers, according to data from Markit Group.

The rise in short sellers comes as Snap’s first lock-up period – the period in which investors are restricted from selling stock after an initial public offering – comes to an end on July 30.

Anthony DiClemente, an analyst at broker Nomura, said: ‘It looks like short sellers are positioning themselves for a dramatic sell-off in Snap’s stock price after the lock-ups expire.’

Snapchat has been struggling to fend off increased competition from Facebook which has been poaching its key features in order to woo users on to its rival photosharing app Instagram.

The social media giant acquired Instagram for $1bn in 2012.

According to research by Nomura Instinet, downloads of Snapchat are down 22pc year-on- year in the first two months of the second quarter – a sharp decline from the first quarter, when downloads rose 6pc.

In the past two months the slowdown has been steepest among iPhone users, down a drastic 40pc.

It comes after Snap issued last month’s maiden set of results, reporting first- quarter losses of £1.7bn, having made sales of just £115m. The average revenue generated by each user came in at 70p, down heavily on 81p in the fourth quarter of 2016.

City veterans have criticised Snap for issuing shares with no voting power, as investors earn dividends but have no say in how the company is run.

The boss of one of Britain’s biggest investment firms described the situation as ‘nuts’ and said buying shares in Snap was like handing someone an ‘unsecured loan’ that may not be repaid.

Snapchat is one the first of the so- called generation of ‘mega unicorn’ companies – start-ups valued at more than £10bn – to brave the public markets.

Uber, Airbnb and Dropbox among others have all shied away from the rigours and attention of an IPO in favour of fundraising in private.