The Day That Sealed Snapchat’s Fate

Peter Sayles |

February 21 will be marked as the day that sealed Snapchat’s fate.

That day Snapchat’s shares dropped 6% – and lost $1.3 billion in value. (Shares were down as much as 8.5% on the day).

Not because of an earnings miss. Not because it couldn’t innovate. Not because Facebook launched a similar product feature.

But because of Kylie Jenner.

Her net worth is now $800 million – 2.3x more wealthy than her sister Kim Kardashian.

Kylie Jenner could be the biggest social media star out there. She has 116 million Instagram followers (in the top 10 of most Instagram followers all-time). And 26 million Twitter followers.

Saying Kylie’s social media influence is massive would be an understatement.

And on February 21 she sealed the fate of Snapchat.

That single tweet is what caused Snapchat to lose 6% in a day.

For reference, U.S. President Donald Trump only sent Amazon’s stock down 0.3% after calling them out for barely paying taxes in 2017. And 7% over the course of a week this past April.

And Tesla’s stock dropped 7% after CEO Elon Musk blatantly violated securities fraud after tweeting “funding secured” on August 7th 2018. (It has cost Tesla billions more after the fact too).

So… is it me, or does Kylie’s tweet have as much weight as the most powerful human being in the world? Or as much weight as when a billionaire tech stock founder publicly breaks the law? Probably somewhere in between.

Snapchat is down 65% since Kylie popped its balloon.

No, we’re not saying Kylie is the lone reason Snapchat continues to plummet. Snapchat has been trending down since the day it went public.

It made our “Honorable Mentions” list in our post “Stocks That Are Guaranteed To Lose You Money Long Term.” We consider it a one trick pony.

It’s whiffed not once, but twice on its Spectacle wearing glasses. Here’s what we wrote in that post:

“Snapchat went down in flames trying to sell its ‘Spectacle’ glasses. Yet CEO and founder Evan Spiegel  doubled down and tried selling the Spectacles v2. Yeah, nobody bought those either. Worst of all,  Spiegel has 100% voting rights. So even if investors wanted the company to change, he could laugh in their face.”

Snapchat is down 43% since that post (August 27th).

It’s now trying to get into the original content game to bring back customers. We think that’s a losing venture. And completely out of Snapchat’s “core competency.” (We wrote about why Apple should buy Netflix as a reason to not compete in the uber-competitive content industry these days.)

Investors may wonder if Snapchat presents good “value” at these prices. After all, it’s down 75% since it’s went public.

Our answer is absolutely not.

It still loses more than $1 billion per year. And trades for more than 8x revenues.

We think Snapchat could easily fall another 50% before we see “value” in the stock.

Investors could look for cheap put options in 2020 to speculate on a further drop from Snapchat. But keep in mind the risk of a buyout.

There’s still hundreds of billions of dollars in cash on the sidelines… any of the big tech companies (Google, Apple, Facebook, etc…) could take a flier on Snapchat if they so choose. The price tag wouldn’t be too steep for companies worth over $500 billion. And Apple over $1 trillion.