Snap Split Stocks: Snap Inc Announces Bizarre Stock Split Plan Amid Free Falling Stock Price

Snap Split Stocks: Snap Inc (NYSE: SNAP) is also in the same league as Netflix and Meta Inc. The stock has fallen 86.5% in the last year, out of which 70.65% has come in the last six months.

A stock split has been the headline news in the last year. Various companies have come up with forwarding split (Amazon Inc, Alphabet Inc, Tesla, etc.), while many had to resort to reverse split, mainly due to falling share prices due to current bear sentiments across the globe.

Social media and entertainment stocks are back in the limelight due to Netflix and Meta Inc reporting a loss of subscribers in the last couple of quarters. Meta Inc and Netflix shares both faced the market heat and have fallen by more than 50% in the last six months. Bad quarter results and poor forward guidance is the main reason for such an unprecedented downfall.

Snap Inc (NYSE: SNAP) is also in the same league as Netflix and Meta Inc. The stock has fallen 86.5% in the last year, out of which 70.65% has come in the last six months. We can surely see that Snap Inc’s fall is greater than its so-called peers, mainly due to very bearish comments by the CEO and management during the conference call of quarter fiscal results.

As Snap shares were struggling with the bear market, management announced a forward split, but with a condition imposed. In this article, we will talk about the SNAP share split in detail, the present situation of the company, and whether the split makes the share a buy or not.

Snap Split Stocks: Facts About the Share Split

Split only if Share Price Reaches $40 – The company’s board has approved the split, but with an intrinsic condition. The condition is that SNAP shares will split only if the share price reaches $40 in next 10 years. $40 represents greater than a 300% jump from the current share price, as the stock is trading at $9.68 (as of August 1, 11:39 am GST). SNAP touched a high of $83.11 on 24th September 2021 and since then, it has been in free fall, and it touched $40 in February 2022. If we talked about $40, 6-8 months back, it seemed logical and possible, but seeing the current downfall, $40 is a very uphill task for the stock.

The announced split ratio is only 2:1- Even if SNAP touches the $40 mark, the approved split ratio is only 2:1. While fellow companies like Amazon and Meta Inc have announced a 20:1 split, Snap Inc board has only approved a 2:1 split, which seems to be irrational and looks like the board has just made a futile attempt to catch the stock split bandwagon. Board has approved giving Class A shares as a dividend in case of a split, which does not carry any voting right, instead of Class C shares (each having 10 votes apiece).

The stock split is just a way to protect the interest of top management: – Snap Inc debuted on NYSE on March 2, 2017. When it went public, it offered only non-voting shares, Class A shares, a move that was unheard of before and the same has not been

copied in a major IPO since then. But share debut gave Chief Executive Evan Spiegel, a “CEO bonus”, which amounted to almost 3% of the company ownership, while he already had owned a healthy percentage. As of today, Spiegel and Chief Technology Officer Bobby Murphy own astonishing 99.5% voting control of the company. While other companies like Amazon and Tesla Inc pronounced that the move of a stock split is mainly to better manage employee stock compensation, Snap Inc blatantly stated in a letter that the move was specifically for the founder’s benefit. The move will enable founders to sell the stock in case it reaches $40, without diluting their voting powers. The reason is that owning a Class A share for each Class C share they own helps them to manage liquidity. While the two executives do a lot of philanthropy, the move of a stock split is only self-serving and nothing else.

Snap Split Stocks: Prominent Issues with the Snap Inc

Dismal fiscal quarter results – While the stock has fallen 86.5% in the last year, it cannot be without the fundamental issues with the company. On Thursday, July 21, the company came up with the second quarter results, and it reported a 13% increase in revenue YoY to $1.11 billion, but it missed analysts’ estimates. But the worrying point is that net loss widened from $152 million to $422 million and its adjusted EBIDTA fell 94% to a mere $7 million. While the number of active users increased 18% YoY, average revenue per user fell 4%.

No more guidance for the third quarter It is a practice to provide guidance of the next quarter during a conference call of any fiscal quarter results. But Snap declined to do so for the third quarter due to uncertainties in the operating environment. Snap blamed Apple’s privacy change on iOS and headwinds from the Ukrainian war for throttling digital ad purchases worldwide. Among all these headwinds, CFO Derek Andersen maintained that the company is poised for 50% growth in revenue for multiple years, in spite of near-term headwinds. That seems to be out of proportion, blowing out a statement when they cannot even provide the guidance for the immediate quarter.

Abrupt $500 million buyback program- If poor quarter results, no guidance for the future, and reporting negative cash flows were not enough to surprise the investors, an unprofitable company Snap announced the authorization of $500 million buyback of Class A shares. The buyback will last for the next 12 months and is meant for the dilution of stocks issued to employees.

Snap Split Stocks: Does Split make SNAP a buy?

The above-listed points highlight one thing, there are management issues with the Snap Inc. The founders and the top management have been thinking about themselves when the company and the share price hit the roadblock. In addition to it, founders having 99.5% voting rights does speak of the volume of how founder-focused Snap is, and on Thursday, it just presented one more example.

No, Snap is not a buy, neither pre-split nor post-split. The reason is simple, bad quarter results can turn with the change in the market sentiments, but a founder-focused strategy is not investors conducive. Split is just a measure adopted by the philanthropist founders to safeguard their voting interests and is not at all a means to reward investors. Investors must look for other social media stocks like Meta Inc, which look affordable after the split.

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-Vineet Agarwal

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