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Will Snap Inc (SNAP) be Barred from Market Indexes?

Zacks Equity Research

Per a Business Insider report, Snap Inc. SNAP has come under fire from several institutional investors. This group of investors isn’t happy with the company’s offering of 200 million Class A shares that carry no voting rights.

Snap has offered shares without voting rights to the public as it does not intend to dilute its decision making power. Snap will have a three-tier share structure and founders Evan Spigel and Bobby Murphy will have the maximum voting rights through the ownership of Class C shares, which carry 10 votes per share. Class B shares carry one vote per share.

As a result, these investors reportedly  have “approached” stock index providers S&P Dow Jones Indices and MSCI Inc to prevent Snap and other such companies that offer shares without voting rights from getting incorporated into these benchmark indexes. The meeting is scheduled sometime this week.

Investors argue that the absence of voting rights completely bars a shareholder from speaking on the issues like company’s growth plans or compensation shelled out to executives. Business Insider also adds that if such a company is listed in any of the indices, “then managers of stock index portfolios will have to buy its shares and other investors, whose performance is tracked against such indexes, would likely follow suit.”

Amy Borrus, deputy director of the Council of Institutional Investors, was quoted saying "they're tapping public markets but giving shareholders no say." She further added that “What we would like to see at the least is for the indexes to exclude new no-vote companies."

Facebook, Inc. Price

Facebook, Inc. Price | Facebook, Inc. Quote

Per the report, MSCI earlier mentioned that Snap was eligible for enlistment on MSCI USA Index but took a U-turn soon stating that the company failed to meet the eligible criteria. S&P 500 Dow Jones indices managing director David Blitzter was quoted by BI stating that a new stock like Snap isn’t qualified for enlistment for at least 6-12 months following its IPO.

On Mar 2, 2017, Snap Inc., the parent company of Snapchat had priced its initial public offering at $17 per share, above the expected range of $14 to $16. Shares began trading at $24 and reached a high of $26.05, before closing a tad lower at $24.48. Shares are currently hovering around $23.77.

Snap’s IPO has been compared with blockbuster tech IPOs. Twitter Inc TWTR was off to a great start with reports of 73% gain on the first day while Alibaba BABA was up 38%. On the other hand, Facebook Inc FB just managed a 0.61% gain on its first trading day.

Since its IPO, which was a debacle of sorts, Facebook, which carries a Zacks Rank #3 (Hold) has come a long way. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

In the past five years, Facebook’s shares have registered growth of 262.13% compared with the Zacks Internet Services industry’s gain of 153.28%.

Want to learn more about Snapchat stock? Check out our recent podcast on SNAP with an IPO expert below!

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