In no rush to sell Snap stock

Af­ter a price slide in July, the firm’s work­ers can’t count on riches from un­load­ing shares.

Los Angeles Times - - TECHNOLOGY - By Paresh Dave paresh.dave@la­times.com Twit­ter: @peard33

The wave of house buy­ing, start-up in­vest­ing and in­creased ex­trav­a­gance ex­pected from em­ploy­ees of Snap Inc. may be de­layed.

Dur­ing most of July, shares of Los An­ge­les’ big­gest tech com­pany not only fetched less than their ini­tial of­fer­ing price of $17, but also were cheaper than the $15.36 in­vestors paid for them in the com­pany’s fi­nal pri­vate fi­nanc­ing.

The price slide has damp­ened em­ploy­ees’ de­sire to sell shares that they earned as com­pen­sa­tion, ac­cord­ing to wealth man­agers and other ad­vi­sors.

They ex­pect con­fi­dence among em­ploy­ees that Snap is worth at least slightly more than cur­rent prices to pre­vail over anx­i­ety in the com­ing weeks. That’s brought down the chance of an im­mi­nent surge of cash into Los An­ge­les when em­ployee-share­hold­ers be­come free to sell around $4 bil­lion worth of hold­ings for the first time Aug. 14.

The amount work­ers sell might be enough to fund grand fam­ily va­ca­tions abroad, but not home pur­chases or risky bets on start­ing their own tech ven­tures. West­side real es­tate agents said they haven’t seen a big uptick in de­mand from Snap em­ploy­ees.

“There’s not a line of peo­ple look­ing to uti­lize this win­dow to sell,” said Jor­dan Kahn, chief in­vest­ment of­fi­cer for L.A. firm HCR Wealth Ad­vi­sors. “There are a lot of peo­ple who think at $13 and change, be­low the of­fer­ing price, that’s not the best time to sell.”

A pre­view of what to ex­pect this month came Mon­day as an es­ti­mated 400 mil­lion shares held by early Snap in­vestors be­came newly trad­able, ac­cord­ing to an­a­lysts. The amount of shares ex­chang­ing hands in­creased three­fold Mon­day com­pared with the av­er­age daily trad­ing over the last 30 days, but it was far from a ma­jor flood. Light­speed Ven­ture Part­ners, one of the po­ten­tial new sell­ers, de­clined to com­ment.

Snap shares closed Mon­day at $13.67, down 14 cents, or 1%.

Em­ploy­ees want to start par­ing their Snap own­er­ship sooner rather than later, driven by fears that the stock mar­ket is due for a down­turn af­ter more than eight years of rid­ing high, ex­perts say. Wealth man­agers also are warn­ing even the youngest em­ploy­ees that an IPO like Snap’s — the big­gest in South­ern Cal­i­for­nia his­tory — is prob­a­bly a on­cein-a-life­time event.

“Peo­ple are look­ing to pro­tect them­selves and are try­ing to go for dou­bles rather than triples and home runs,” said Jor­dan Taylor, who works with tech clients for Sil­ver­hawk Pri­vate Wealth. “Let’s try to make con­sis­tent strong de­ci­sions rather than swing for the fences ev­ery time.”

Fur­ther spook­ing work­ers is po­lit­i­cal tur­moil un­like any most young tech share­hold­ers have seen.

“Peo­ple who have neg­a­tive views to­ward the cur­rent pres­i­dent are con­cerned about what’s go­ing to hap­pen eco­nom­i­cally, so they want to be a lit­tle safer,” Taylor said. “How peo­ple are re­spond­ing to mar­kets is more po­lit­i­cal than ever.”

The un­ease is trick­ling down to work­ers at star­tups that might go pub­lic over the next year. For years, em­ploy­ees at such places would shell out to ex­er­cise as many stock op­tions as pos­si­ble be­fore an IPO. Work­ers had lit­tle doubt they were get­ting a good deal be­cause they felt shares would con­tinue to rise in price. They would save on taxes and lock in big gains.

That’s not the case any­more, said Jack Mec­cia, who has ad­vised work­ers at Blue Apron, Cloud­era and other tech firms on tax is­sues. Com­pa­nies are get­ting so pricey on the pri­vate mar­ket that the pub­lic stock mar­kets are not im­me­di­ately em­brac­ing them with an in­stant pre­mium.

“Em­ploy­ees are wisely skep­ti­cal that an IPO means a higher share price,” said Mec­cia, a tax as­so­ciate at fi­nan­cial plan­ning firm Vest­board. “Writ­ing a check to ac­quire those shares, you’re not go­ing to au­to­mat­i­cally do that.”

Money man­agers say tech com­pa­nies have rec­og­nized the con­cerns and are mak­ing ad­just­ments. Drop­box and Uber re­port­edly have con­verted some of the stock they give em­ploy­ees into non­qual­i­fied stock op­tions, which gives work­ers more time to find the cash to pay for their shares and the in­creas­ingly larger tax bills associated with them.

“This is def­i­nitely an is­sue at an elite level be­cause of the huge val­u­a­tions,” said Evan Sch­midt, whose firm man­ages about $350 mil­lion in as­sets and has worked with Snap em­ploy­ees.

If any­thing, em­ploy­ees at com­pa­nies such as Snap are con­sid­er­ing more op­tions about how to sell, where to in­vest and when to do it than peers at other firms in re­cent years, ex­perts said.

Will Pres­i­dent Trump kill the al­ter­na­tive min­i­mum tax or re­duce the cap­i­tal gains tax, chang­ing the math on cash­ing out of stock? What if there is in­deed a ceil­ing on how much Wall Street will pay for tech stocks?

“It’s cre­at­ing a cer­tain amount of angst in newly pub­lic com­pa­nies that wasn’t there a year ago,” Mec­cia said. “I’m see­ing clients more ea­ger to sell on a shorter time frame than even five months ago. It’s mak­ing them gung-ho about sched­ul­ing sell-offs in 2018.”

A sell-off at Snap may be more in bits and pieces be­cause many of the em­ploy­ees be­lieved to hold the most shares, in­clud­ing co-founders Evan Spiegel and Bobby Mur­phy and other top en­gi­neers, fall un­der ad­di­tional fed­eral trad­ing re­stric­tions.

Snap de­clined to com­ment for this ar­ti­cle.

Fi­nan­cial an­a­lysts who fol­low Snap have said much of the 22% de­cline in Snap’s share price dur­ing the last month rep­re­sents in­vestors fac­tor­ing in em­ploy­ees and early in­vestors sell­ing some shares. If the sell-off re­mains muted and Snap de­liv­ers strong sec­ond-quar­ter sales Aug. 10, the stock could bounce back up into the high teens. At that point, sell­ing could be­come more at­trac­tive to em­ploy­ees.

Start-up ad­vi­sor Richard Ti­tus, who saw a friend go bank­rupt af­ter spend­ing lav­ishly fol­low­ing an IPO, said he hopes the ex­tra con­cerns weigh­ing on peo­ple this year lead to smarter fi­nan­cial moves.

“The most so­phis­ti­cated of peo­ple in these sit­u­a­tions are do­ing things like pledg­ing their shares early for cash to pro­tect against de­pres­sion in price,” he said.

Dur­ing the dot-com boom around 2000, Ti­tus sold the first of his mil­lions of dol­lars worth of shares in Ra­zor­fish for $126 af­ter an IPO. He got just 20 cents for his last shares years later.

“That’s a pre­cip­i­tous drop in value,” said the for­mer vice pres­i­dent at Ra­zor­fish’s Los An­ge­les of­fice. “I was very cau­tious along the way.”

Guid­ance Soft­ware to be ac­quired

Los An­ge­les County could lose one of its longestrun­ning pub­licly traded tech com­pa­nies this year should OpenText’s $222-mil­lion ac­qui­si­tion of Pasadena firm Guid­ance Soft­ware close as ex­pected this quar­ter.

OpenText, which de­vel­ops doc­u­ment man­age­ment soft­ware, agreed to pay $7.10 in cash per share for the maker of foren­sics and cy­ber­se­cu­rity soft­ware. Guid­ance shares had traded for about $6.90 be­fore the deal an­nounce­ment last week; they closed Mon­day at $7.07.

Guid­ance’s best-known pro­gram, EnCase, is widely used in law en­force­ment to search the hard drives and mem­ory of seized phones and com­put­ers.

Founded in 1997, the com­pany has never had a prof­itable year since go­ing pub­lic in 2006. And losses have in­creased, reach­ing nearly $21 mil­lion last year.

Com­ing up

Sig­graph, which bills it­self as the world’s big­gest con­fer­ence fo­cused on com­puter graph­ics and in­ter­ac­tive tech­nol­ogy, con­tin­ues through Thurs­day at the L.A. Con­ven­tion Cen­ter. The event is put on by the Assn. for Com­put­ing Ma­chin­ery’s Special In­ter­est Group on Com­puter Graph­ics and In­ter­ac­tive Tech­niques. Many of this year’s top dis­cus­sions are ex­pected to fo­cus on vir­tual re­al­ity.

Drew Angerer Getty Images

SNAP’S em­ployee-share­hold­ers be­come free to sell about $4 bil­lion worth of hold­ings for the first time Aug. 14. Above, the New York Stock Ex­change in March.

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