Why Snap Stock May Have Further to Fall

Since Snap went public in early March, good news for the stock has proved as ephemeral as messages on the Snapchat app. The occasional positive development has given the stock a lift for a day or two, until it sinks back down.

And it’s likely to sink even further in coming weeks. Most of the early shareholders in Snap will be freed from constraints on selling at the end of July, which means the amount of stock potentially available will rise from 180 million shares to around 1.1 billion, according to a recent Citigroup report. Much of that won’t be available—CEO Evan Spiegel isn’t likely to sell his 211 million shares, for instance—but some will. Even the expectation that a flood of additional shares is coming will depress the stock. And it raises the question of what is a reasonable floor for Snap stock.

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Snap can prove us wrong by jumpstarting user growth or by building up its hardware business. Otherwise, its path appears set. And so is the direction of its stock price.

—Tom Dotan contributed to this article

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At some point, the amount of ads being shown Snapchat users will hit saturation, where further increases will turn off users.