As Snap melts down, its founders make sure to protect the people who matter: themselves
Unique stock-split plan would allow Snap’s chief executive and its technology chief to cash out while maintaining dominant control of the company, which seems like an odd thing to focus on as the company hits a rough patch
Snap Inc. has never been an investor-friendly company — as long as those investors weren’t its founders, at least — and the parent company of the Snapchat app made that even clearer Thursday.
Amid a major slowdown in its digital advertising business, Snap’s SNAP,
Full earnings coverage: Snap stock plunges 25% as advertising slows down, executives decline to offer forecast
That would seem like an easy target to hit, considering Snap was trading for $40 a share as recently as January. But Snap’s stock has been under enormous pressure since late last year, when Snap blamed changes Apple Inc. AAPL,
Since that October warning, when Snap’s shares were trading in the vicinity of $75, shares have fallen around 78%. The stock was tumbling sharply again in after-hours trading on Thursday, to around $12, after yet another troubling earnings report in which Snap’s founders couldn’t find it in themselves to even offer a financial forecast.
Since its inception, Snap has been built to please its founders, Chief Executive Evan Spiegel and Chief Technology Officer Bobby Murphy. When it went public in 2017, it offered only nonvoting shares, known as Class A shares, an at-the-time unheard-of move that hasn’t been copied in a major IPO since, and gave Spiegel a “CEO bonus” that amounted to 3% of a company of which he already owned a healthy percentage. The result is that Spiegel and Murphy own a whopping 99.5% voting control of the company.
While other companies that have planned stock splits of late, such as Amazon.com Inc. AMZN,
While the two executives have been involved in a lot of philanthropy in recent years, the move seems self-serving. Are the co-founders just making sure they have an easier path to make donations, or are they fiddling while Snap burns?
Clearly, a $40 stock price is a not something Snap is going to see in the near future, so that is probably why no analyst posed a question about the dividend plan on the company’s conference call Thursday. The more immediate problem for investors is the company’s deteriorating ad business, and whether it is symptomatic of the economy or something more problematic at Snap itself.
Snap’s top leaders also should have been focused on Snap’s serious issues, such as the widening quarterly loss and lower-than-expected revenue, or the fact that the company is still unprofitable and doesn’t seem headed toward profitability. Instead, they made sure to protect themselves.
If investors had forgotten how founder-focused Snap is, they got a big reminder on Thursday. And whether those founders are worth it or not, investors have no say in the matter.