One of my (many) gripes with the SNAP IPO (and to be honest, many others brought this point up as well) was the sale of common stock with absolutely no voting rights, to wit:
- Cue in Goldman Sachs and Morgan Stanley. They have pulled off the heist of the decade, essentially selling 200 million digital tokens (they're calling them stocks) with no voting rights at a trailing P/S multiple of 60x and forward multiple of 20x for a startup losing half a billion per year, with said losses increasing over $200M Y-o-Y. This is almost the ultimate in reward free risk.
- ... basically take the risk of a venture capital investor, get the protective covenants of... Oh yeah, there are none, and the reward of... who knows, it's a startup! Oh yeah, you get the returns of venture capitalists as well, right? Wrong! You don't have control or voting powers in the company at all.
- ... Moral to the story, be wary of Mark Cuban and anonymous hedge fund investors backing of "alternative facts" explanations of slowing growth at the top of the business cycle when non-voting shares are sold at what has to be a world record valuation for a start-up company that loses half billion dollars per year, with said losses increasing by roughly $200M per year.
Well, Reuters reports activistist investors are attempting to block SNAP from inclusion in major indexes, to wit:
A group representing large institutional investors has approached index providers S&P Dow Jones Indices and MSCI Inc, looking to bar Snap Inc (SNAP.N) and any other company that sells investors non-voting shares from their stock benchmarks.
Both index providers have said they are reviewing Snap's inclusion. Were Snap to be added to indexes such as the S&P 500 Index or the MSCI USA Index, managers of stock index portfolios would have to buy its shares, and other investors whose performance is tracked against such indexes would likely follow suit.
Some money managers worry about buying Snap’s Class A shares because they have no voting rights, meaning those shareholders will have no voice on matters like company strategy or executive pay.
"They're tapping public markets but giving public shareholders no say," said Amy Borrus, deputy director of the Council of Institutional Investors, which represents pension funds and other large asset owners, in an interview.
In reaching out to both index providers, she said, "What we would like to see at the least is for the indexes to exclude new no-vote companies."
David Blitzer, managing director of S&P Dow Jones Indices and chair of a committee overseeing its indexes, said they would not add a new stock like Snap for six to 12 months after its IPO in any case, and will use that time to study Snap's structure.
While the index provider does not have a hard requirement about a company's voting structure, the committee needs to think through how much influence investors should have, Blitzer said in an interview on Monday.
MSCI (ex-Morgan Stanley) was (or shall I say is, they seemed to be alight with it until someone raised a stink - wonder why???) a bit less sanguine on the matter:
MSCI (MSCI.N) said on March 2 that Snap would qualify for indexes including the MSCI USA Index, but said on March 3 that after additional analysis Snap did not meet all requirements. Snap's inclusion into the MSCI USA Index will be re-assessed in May, MSCI said in a statement on its website.
MSCI is seeking feedback from investors about whether companies without voting rights should be included in indexes, according to the March 3 statement. A spokesman did not immediately provide further details.
Since no one else will say it, I will. SNAP's lack of earings visibility, slowing growth and void of common shareholder voting rights (at least those shares sold in the IPO) were all easily availalbe. You guys allowed Morgan Stanley and Goldman Sachs to make sheeple of you once again. Now, is not the time to complain. The stock was ridiculously overpriced anway, and may fall further still. Index inclusion requirements vary. For the S&P 500 a stock typically needs a market capitalization of around $5.5 billion and to have been profitable over the past four quarters.
I don't see Snap being profitable four quarters in a row without sacrificing growth, and possible not ieven then.