Employee stock ownership plans are not one of the most common types of employee benefit packages on the market, but Silicon Valley tech companies often use stock options to compensate employees. A Rutgers study found that ESOP companies grow 2.3% to 2.4% faster after setting up their ESOP plan. However, issues start to arise when the company doesn’t perform as well as expected, which can directly impact employee benefits.
Which is exactly what happened recently with Snapchat, whose shares plummeted after they missed their expectations.
According to an article by the Los Angeles Times, Snapchat was reported to have picked up fewer users and less revenue in the second quarter of 2017. This led to the shares of the company plummeting on Thursday, August 10. This comes five months after a $24 billion IPO. This led to increased expectations and “hype” for the company’s progress.
Unfortunately, Snap didn’t deliver, and this data caused their share prices to drop, and fast.
The shares are reported to have fallen 21% after the first earnings report, and another 13% when the latest results were posted. The Los Angeles Times reports that employee-stockholders at Snapchat became free to sell nearly $4 billion worth of shares on August 14, but many employees are holding out after the disappointing earnings report. The stock slumps make it unlikely that employees will sell their shares anytime soon.
“There’s not a line of people looking to utilize this window to sell,” said Jordan Kahn, chief investment officer for Los Angeles 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.”
The share price of Snapchat dropped from the initial offering price of $17 in the early part of spring to $15.36 through most of July. The share price continued to fall after that point, reaching $13.67 on Thursday.
Wealth managers and investors are also warning younger employees at Snap that an IPO like Snapchat’s is likely a once-in-a-lifetime event. They tell them to not get their hopes up for another chance at it and to look for more guaranteed opportunities.
“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.”