Snap stock may be in for another rocky month.
Snap, which went public in early March, is nearing the end of its stock lock-up period for employees and early investors, which forbids those early shareholders from selling Snap stock for the company’s first 150 days on the stock market.
Typically, the end of a lock-up period means that lots of investors, and especially early employees, rush to sell the stock. Many of them have been waiting years to turn their stock awards into actual cash. It’s also usually a milestone that some long-term, vested employees use as a reason to leave the company, which is certainly a possibility with Snap. That’s a bigger issue in the long run than a dip in the stock price.
Regardless, there will soon be a whole lot of Snap stock eligible to trade on the public market. Citi Research projects that the lock-up’s expiration will free up 949 million new shares for trading, significantly more than the current float, which is 230 million shares, according to Snap’s S-1.
The 150-day lock-up period ends on Saturday, July 29, which means the first day of potential trading for most of these insiders — like early investors and former employees — is Monday, July 31.
But some of those insiders, namely current Snap employees, will have to wait almost two weeks longer, according to two sources familiar with the company's structure.
That’s because Snap is scheduled to report its Q2 earnings on Aug. 10, which means that current employees will be in the midst of a pre-earnings blackout period on July 31 when the lock-up ends. The window of time around the company’s earnings report — where employees cannot trade company stock — is a way to protect against insider trading.
Usually, that blackout is lifted a few days after earnings, which means current employees will most likely be able to sell their shares beginning Monday, Aug. 14.
Companies often experience a stock dip when employees are finally free to sell their shares. The day Twitter’s lock-up ended, the stock dipped almost 18 percent from the previous day’s close. Facebook had multiple, staggered lock-up periods, but the stock still dipped a handful of times when those lock-ups ended.
It’s very possible that Snap will experience the same dip. The company has already had a rough start to life on the public markets, in part because it’s trying to fend off copycats from Facebook, but also because the growth of its young advertising business hasn’t impressed the way some early investors hoped.
But a stock dip is certainly not guaranteed.
For starters, the lock-up date is staggered thanks to the timing of Snap’s earnings. That means not all of those expected 949 million shares will be available on the same day.
It’s also possible that the expected stock dump from employees is baked into the current stock price, as most investors are aware it’s coming. Snap is trading just over $15 per share, which is near an all-time low, meaning some investors and employees won’t want to sell. Snap stock is down roughly 36 percent from its $24 opening day trading price, and it’s even below the $17 IPO price that its institutional investors bought at. Some early employees would make money if they sold immediately after the lock-up, but not all would.
Also this: Roughly 45 percent of the new shares that will be available for trading, or approximately 422 million shares, are owned by Snap co-founders Evan Spiegel and Bobby Murphy. They already cashed out a small percentage of their shares at the time of the IPO, and while neither of them have said publicly that they won’t sell once the lock-up expires, selling would be a bad look given the company is currently under fire from investors and Facebook.
Other investors, like Lightspeed Venture Partners and Benchmark, also sold shares at the IPO. So while there’s nothing that says that can’t sell more, they have already cashed out some.
Finally, we don’t know exactly how many shares have vested from Snap’s employee stock grants. Snap’s 10-20-30-40 vesting cycle over four years is structured to encourage employees to stay with the company. It’s possible that many of the RSU’s Snap listed on its S-1 and have granted to employees are not actually available yet.
Which is all a way to say that, while Snap’s lock-up looms, it’s not as simple as it sounds. More concerning than the end of the lock-up will be if Snap delivers another disappointing quarter when it reports earnings on Aug. 10.
This article originally appeared on Recode.net.