Corporate Finance & Capital: Capital Markets

Are rookie investors getting taken for a ride by the popular social media app?

Despite criticism over the company’s weak governance model, investors snapped up shares in Snap’s $3.4 billion initial offering. The company’s co-founders, Evan Spiegel and Bobby Murphy, worked to secure a combined 88.8% voting interest while raising more than the $3 billion offered by their larger rival Facebook in 2013. Some reports indicated that young investors backed the IPO of Snapchat’s parent because of their fondness for the video-sharing app.

Snap’s initial offering of nonvoting shares also turned the page on the “one share, one vote” culture as investors took a leap of faith. And millennials may be only part of the picture. “While millennials are avid users of the Snapchat platform, they weren’t the only generation to jump at the opportunity to invest in the company,” Nicole Sherrod, managing director for trading at US brokerage TD Ameritrade, tells Global Finance.

“TD Ameritrade found the average age of the Snapchat investor was 47; and of the 5,500 clients that traded Snap as their first investment, the average age was 38,” Sherrod says in emailed remarks. And with Facebook’s WhatsApp and Instagram biting into Snapchat’s prime user growth, the higher age group could prove a good bet in the long term. “Already, Snap is seeing much faster growth outside of the 12–24 age range,” FBN Securities analyst Shebly Seyrafi says in a research note.

Snapchat’s 158 million users are mostly millennials aged 18–24, a younger group than Facebook’s. Millennials mostly trade the stock of tech companies; and their most popular stocks in 2016 were Apple, Facebook, Amazon and Netflix, according to TD Ameritrade. But only one in three millennials is investing in the stock market, according to That compares with 51% of Generation Xers, those now 36–51 years old.

Questions remain whether more tech companies will offer nonvoting shares to laid-back investors and whether their millennial users are buying into this vision. “I think [millennials] will see this as the new normal,” says Stephen Isaacs, chairman of the investment committee at London-based alternative advisory firm Alvine Capital.

Tech giants like Facebook and Google’s parent Alphabet already have multiple stock classes with limited voting rights, but the creators of disappearing messaging app Snapchat ventured into new territory, leaving shareholders to wait and see.

Hedge funds may have played a part in ramping up interest in the IPO, Isaacs says. But passive funds, which track indexess and don’t sell stocks, are the likely target, he said.

“We won’t know the share register for some time, so this is my hunch. But seriously no value, or active manager is going to buy this stock valuation!” Isaacs writes in an email. “Maybe the index huggers but no one else.” But the picture may change. Meanwhile, governance concerns have hurt Snap’s chances of being added to major indexes and the stock has dropped from its peak of $24.48 on its March 2 debut.