NEW YORK/BOSTON (Reuters) - The dramatic fall in Snap Inc shares on Thursday following the company's disappointing first quarterly earnings report as a public company was likely costly for a wide range of mutual funds, including Fidelity's giant Contrafund.
On the other side of the ledger, short-sellers racked up about $191 million (148.25 million pounds) in profits on their Snap investments, according to data compiled by the financial analytics firm S3 Partners.
Shares of Snap, parent company of the popular messaging app Snapchat, fell 21.5 percent on Thursday, losing $4.93 to close at $18.05 and wiping out nearly $5.8 billion in market capitalisation. The company, in its first earnings report since going public in early March, after the market close on Wednesday reported only modest user growth and revenues that fell short of analysts expectations.
The largest mutual fund investor in Snap, Fidelity's $100 billion-plus Contrafund, listed nearly 10 million Snap shares worth $217.4 million as its main stake in Snap as of March 31, according to the fund’s disclosures. Snap's shares on March 31 closed at $22.53. Assuming no changes, that stake would now be worth now around $175 million.
Contrafund had acquired about 1.9 million Snap shares in early 2016 in a pre-IPO investment of nearly $29 million, for a price of about $15.25 a share. Those shares, if still held, would represent a gain of about 18 percent.
A Fidelity spokeswoman, Sophie Launay, noted in an emailed statement that Snap is just one of hundreds of stocks in the Contrafund portfolio. “We are long-term investors and that Snap is a very small percentage” of the fund’s overall assets, Launay said in the statement.
T. Rowe Price's $37 billion Blue Chip Growth Fund owned 1.56 million shares of Snap as of March 31, according to the fund's disclosure of holdings. That $35.3 million stake, based on Snap's March 31 closing price, would now be worth about $28 million.
A T. Rowe Price spokesman declined to comment.
Meanwhile, short-sellers were looking for more gains. Short sellers aim to make a profit by selling borrowed shares on the hopes of buying them back at a lower price later and pocketing the difference.
A $3-million short bet against Snap was among the AdvisorShares Ranger Equity Bear ETF’s top 20 positions as of Wednesday, accounting for 1.75 percent of the fund.
“They got very fortunate in the pricing Wall Street gave them when they went public, but really it’s the epitome of a ridiculously priced IPO after a six-year bull market,” said co-portfolio manager Brad Lamensdorf. He said the ETF has not reduced its bet against Snap following Thursday’s stock selloff and expects the share price to go lower.
Snap went public on March 1 at $17 a share, topping the company's expected range of $14 to $16 a share.
Heading into Snap's earnings announcement on Wednesday, short positions in the company were at 38.65 million shares. Based on Snap's Wednesday closing price of $22.98, the positions were equivalent to about $888.15 million, according to S3 Partners.
"We would anticipate shorts to keep positions open until the stock at least reaches the IPO price of $17, especially since financing costs are less than 1 percent annualised," said Matthew Unterman, director at S3 Partners.
"However, we are seeing rates starting to trend more expensive today," he added.
Some options traders also did well. One options trade made on Monday – a block of 17,809 put contracts betting Snap shares to trade below $21.50 by May 19 – was now worth about $5.3 million, up from $1.6 million on Monday, as the average price of the contract jumped to $3.30 a put on Thursday from just 90 cents Monday through Wednesday. Sentiment was mixed as some traders appeared to be loading up on near-term protection while others appeared to be betting that the shares were ripe for a rebound.
With the earnings report out of the way, 30-day implied volatility, a gauge of traders' expectations for near-term moves in the shares, fell to a record low.
Overall Snap options volume jumped to a record high of 325,000 contracts, vaulting Snap options to the 10th most actively traded name in equity options on Thursday, according to options analytics firm Trade Alert.
Additional reporting by Saqib Iqbal Ahmed, Tim McLaughlin and Svea Herbst-Bayliss; Editing by Jonathan Weber and Leslie Adler