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Snapchat Stock Keeps Falling as Big Investors Lash Out at Death-Defying Power Structure

Founders want to control the company all their lives — and even after

Snapchat founders Evan Spiegel and Bobby Murphy have so much control over parent company Snap Inc. that their designees will retain a grip on their company for nine months after the twentysomethings’ untimely deaths.

But traditional investors are revolting over their inability to pry away any of that control — even, God forbid, from Spiegel and Murphy’s cold, dead hands.

The millennial-facing Snapchat is built on a bold, entirely new approach to social media, one bafflingly mysterious to many people over 30. But resistance from Wall Street’s old guard is beating up the newly public company’s stock.

In the company’s initial public offering Friday, it popped 44 percent from an offering price of $17 a share, which brought its price for public investors to $24. But it fell 12 percent Monday, then another 12 percent through late afternoon trading on Tuesday, bringing its price to $21 and erasing the initial gains for anyone who bought on the open market.

A barrage of negative analyst reports have called the company everything from “lottery-like” to full of “hot air.” But it’s latest problem is its non-shareholder friendly voting structure, which gives Murphy and Spiegel power through life and even from beyond the grave.

Spiegel and Murphy essentially hold nearly all of Snap’s Class C shares — the only stock with voting rights. The Class A shares retail investors bought in the company’s IPO last week and that are trading on the market confer absolutely no voting rights on their holders, which is unusual for a public company.

A group that represents large investors like pension funds has reached out to the two largest providers of stock indexes, asking them to bar companies like Snap that only offer non-voting shares. If Snap were to be included in those indexes, any funds that track them would be obligated to buy and hold shares, helping to boost its stock price.

Snap has maintained that keeping control concentrated among the founders allows Spiegel — widely regarded as one of the best product thinkers in the industry — to evolve the company according to his vision. But the company acknowledged its structure was unprecedented in its S-1 filing preceding its IPO.

“Although other U.S.-based companies have publicly traded classes of non-voting stock, to our knowledge, no other company has completed an initial public offering of non-voting stock on a U.S. stock exchange,” the filing said.

A Thursday Reuters op-ed minced no words about what it means when investors rush toward a stock with no voting rights, comparing it to wearing sweatpants in public.

“With Snap’s $3.4 billion initial public offering, they have simply given up giving a damn,” Rob Cox wrote. “They handed their money over to an immature company and in the process abrogated their rights to fair treatment, good governance and reasonable valuations.”