This is really disturbing. I don't know if its an indicator of too much money in the market, or just the fact that the market itself has expanded so much. Why would investors be OK with losing power?
And I'll be the first to raise my hand on that front. On the face of it, I'm not really interested in owning a stock like this. But I've stopped picking stocks entirely, now I just invest in the stock market through index funds. And there are a lot of people like me -- enough that Vanguard funds own about 5% of just about every public company you can name. People like me are essentially saying, "We don't really care what this company does, how much it costs, or whether its stock can vote, we want to own 5% of it." (And that's just Vanguard -- there are plenty of other passive funds out there, too.)
In an IPO that sells 10 or 15% of the company, these "buy at any price" investors can eat up a pretty big chunk of the available shares. So all it takes is a few investors to say, "yes, we want to buy at this valuation," and the rest of us will blindly follow.
If you're a speculative investor and plan to own for <1 month or so, who cares about voting rights.
If you're a long term investor, say >2 years, non-voting shares means the company doesn't have to burn itself for quarterly or annual results.
Activist investors won't like it (but there's not really that many of them).
Will probably work well as long as things are going well for the company. If things go badly, management will need to be very self-aware or the recourse will be a large discount to the share price.
Those are incredibly different things. If I put $5000 in SPY, even if the S&P 500 index contains $FOO today I'm not telling my brokerage firm to "buy and hold $FOO at any price", because that's not how the SPY index works, and it's also not how index fund investing works a strategy either.
In addition, most indices are based on fundamentals like market cap, earnings, and price - either directly or indirectly. Putting money in an index fund is delegating the work of that research to a trusted entity, in exchange for a fee (which is usually bundled into the trading prices).
Actual "blind investing" or "buy at any price" would be someone who trades on individual stocks without doing any systematic research, either directly or through a delegate.
Unless you can educate me as to what you mean here, I understand that this is exactly what is happening. As long as $FOO remains in the S&P 500, buying and holding SPY is financially (roughly) equivalent to buying and holding equity in $FOO in proportion.
If not, what index funds would?
With the risk of stating the obvious... index funds tracking the S&P 500 index buy exactly the 500 stocks that form the index, no more no less (modulo some derivatives that are highly correlated with the index).
So they will buy Snap whenever S&P decides to include Snap in the S&P 500 index. Snap has already surpassed the minimum necessary market cap (~U$5 billion). There are other criteria, but ultimately the inclusions and exclusions are decided by committee [0]. When they do decide change the index, they announce it well ahead of the date when the change is effective.
[0] S&P U.S. Indices Methodology http://us.spindices.com/documents/methodologies/methodology-...
Most investors are buying as a way to make money off of continued success. They don't want to control the business or make decisions, and even if they did, they don't want to invest enough to make a dent in the normal 1-share-1-vote sort of model. They're looking the company and hooking their accounts to its success. In the public markets, most investors aren't in it for the control, they're in it for the returns.
There's a good reason to exert control in both cases, but for many, it feels futile to do so.
What kind of corporate bonds specifically? Is it Super safe AAA rated?[1] Or high-yield (aka "junk bonds")?[2]
If an investor wants big returns like he's hoping for Snap's IPO, buying safe AAA bonds isn't going to match that. E.g. Microsoft's 10-year bond only pays 3.34%.[3] That low interest rate barely above Treasury bills is the "price you pay" for safety. If you want to take more risk with a "BB-" corporate bond from Frontier Communications[4], that will pay 11%. That still won't match the potential upside of high flying stocks and the investor has to factor in Frontier's increased potential for defaulting on that debt. (Frontier wouldn't have to pay 11% if all lenders were confident the company would pay it back.) It's not just the bankruptcies to worry about; lots of corporations default on their debts.[5][6]
It's perfectly rational for some investors to calculate a risk-vs-reward and conclude that investing in shares with reduced voting power is better putting money into low-grade corporate bonds.
[1] http://www.marketwatch.com/story/exxon-mobils-downgrade-leav...
[2] https://en.wikipedia.org/wiki/High-yield_debt
[3] https://www.ft.com/content/7d0a5618-e70d-11e6-967b-c88452263...
[4] http://quicktake.morningstar.com/stocknet/bonds.aspx?symbol=...
[5] http://www.zerohedge.com/news/2016-07-14/global-corporate-de...
[6] http://www.marketwatch.com/story/company-defaults-headed-for...
Bond market pricing also benefits large investors. A small guy buying 20-30 bonds will pay higher markup, higher commission and be quoted higher price than a large player with an 8-digit buy order.
In a stock market (outside the dark pools) two players will get quoted roughly the same market price. The larger guy is likely to be at a disadvantage, as exposing a large buy order might lead to supply tightening.
One of the things that I personally believe is that when a company IPOs their priorities become heavily skewed towards profit and earnings, often over a short term period, above all else. And I think that hurts them.
I'm not sure that removing the voting rights of stockholders completely eliminates that pressure—it's probably also rooted in having to be on earnings calls, and the price fluctuations of bad earnings calls, etc.—but remove those voting rights might help to eliminate some of the negative, short-term-profit-seeking pressure.
If it does, it seems reasonable for some investors to want to invest in companies that aren't as worried about voting rights takeovers.
For every long-term success story (FB) there's also a story where investors gave the founder super-voting rights and got pretty much nothing in return (ZNGA).
Everything is ok while everything is ok.
If the company was to run into trouble these restrictions would probably be another reason (in addition to the performance) for large investors to avoid the company. Long term it remains to be seen if this will matter or not but my guess is that as long as it is sailing high many won't care.
1) A right to a pro-rata dividend
2) A right to vote on board, current executives, and strategic matters
3) A right to a pro-rata share of proceeds in case of a liquidity event, be it acquisition or a bankruptcy sale
It seems that current Snap shares come with (3) and only (3), so my guess would be that those investors are betting on growth and nothing but growth.
Price difference between GOOG and GOOGL provides some empirical insight into the value of a voting vs non-voting share.