Snap's so-called share lockup period ends on Monday, potentially allowing early investors in the March IPO to unload hundreds of millions of shares on an already wary market.
Snap investors and key employees were prevented from selling all their shares during a predetermined lockup period.
However, early investors will be able to sell up to 400 million shares starting July 31, according to a report by JPMorgan analyst Doug Anmuth. Other employees, including CEO Evan Spiegel and CTO Robert Murphy, and will be able to sell up to an additional 782 million shares on Aug. 14. About 97 percent of Snap stock will be available for trading by the end of August, Anmuth said.
This wave of potential selling adds more pressure on an already struggling stock. Snap is down 5 percent this week and more than 22 percent in the month of July. As of midday Friday, the shares were at $13.67, down 2 percent for the day.
The social networking video company missed analyst expectations during its first earnings report in May, mostly because many of its key features are being replicated by Facebook. It only added 8 million users during the quarter, compared to 59 million worldwide Facebook added during the same period. The company is expected to report its latest quarterly earnings on Aug. 10.
The stock has been downgraded multiple times recently, including by Cowen and Morgan Stanley, which took the company public. In early May, almost 70 percent of Wall Street did not recommend Snap as a buy, according to FactSet.
Snap shares fell below their initial $17 IPO price in July. Drexel Hamilton analyst Brian White told CNBC's "Squawk Box" he expected the stock to bottom out, though he noted it might be a great time to buy the stock at that point because it could rise to $30 a share.
Many investors are shorting the stock into the lockup end, meaning they are borrowing shares on the presumption that they can buy them back at a profit after the price drops. The demand is driving annual fees to over 60 percent of the price to borrow Snap stock, according to a note by IHS Markit research analyst Simon Colvin on Friday.
Still, available Snap shares in stock lending programs have dropped 13 percent over the last month, which is "relatively uncommon" given the high interest rates, Colvin pointed out. He said it is unknown if investors are changing their mind on Snap.
To be sure, traders could also be bracing for a so-called short squeeze, where the shares rally on the actual news event as bettors against the stock are forced to buy back what they borrowed. So it's not clear whether the actual start of this lock-up period will mark the end of the pressure on Snap shares or the start of another leg downward.
Note: Only early investors, not employees, will be able to sell shares starting on July 31. Co-founders Evan Spiegel and Robert Murphy's stock lockup will end Aug.14.
