All things considered, things could be worse for Snap Inc (NYSE:SNAP) right now … much worse. A huge swath of newly-free-trading shares of SNAP stock were just introduced into the float, and although Snap measurably slumped on the initial dump, the stock bounced back pretty well before things went from bad to worse.
The prod for the rebound was — at least according to most media sources — word that at one point Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) had offered $30 billion to acquire Snap to bring its Snapchat app (and its users) into the Google ecosystem. Traders connected some dots, presuming that if the company was a buyout target in the past, it’s likely to become one again.
Consider this your friendly reality check: If you own SNAP stock because you think it’s going to be acquired anytime soon at a price well above where Snap shares are trading, you’re making a bad bet.
SNAP: Once A Hot Commodity
You know the company, even if you don’t know you know the company. Snap is the parent company of online-messaging platform app Snapchat, which allows users to overlay digital stickers and artwork on top of the pictures they send. Its claim to fame, however, is how its messages aren’t saved or stores unless users intentionally do so.
Oh yeah … SNAP is also the messenger platform that Facebook Inc (NASDAQ:FB) has consistently, almost gratuitously, copied every step of the way as it has developed its own similar app called Instagram.
In the grand scheme of things that copy-cat tactic can’t be surprising. Facebook offered to acquire Snapchat in 2013 for a cool $3 billion, suggesting Mark Zuckerberg liked the premise of an entertainment-oriented messenger. Snap CEO Evan Spiegel rebuffed, expecting to build a company of greater value in the foreseeable future. Facebook moved on, and has since beat Snap as its own game.
Still, if the whispers are true (and that’s still a very big if), Spiegel was right to hold out; a $30 billion offer from Alphabet is a ten-fold improvement on Zuckerberg’s offer. More than that though, it’s a tacit confirmation that Snapchat is a desirable, serviceable, even if unprofitable platform.
Unfortunately for SNAP stock holders, hopes of a generous buyout offer are quickly fading.
SNAP Stock: Where’d the Buyers Go?
To be fair, a Google-owned Snapchat isn’t a terrible idea. Facebook’s Instagram captures a lot of revenue-bearing eyeballs that Google would love to garner. It just doesn’t have the right vehicle. Snapchat could be integrated into several of Google’s consumer and business-oriented service, and its back-end technologies have value too.
It’s not as if Alphabet is sitting on its hands after it got turned down by Spiegel though. Google just unveiled its “Stamp” search tool, which takes dead aim at Snapchat’s “Discovery” feature. In light of the fact that Aphabet’s pockets are deeper and it has already got a user base numbering in the billions, one can only assume that Google will do to Snap what Facebook did to Snap … head it off at the pass.
In other words, Google doesn’t need Snapchat any more than Facebook does. It never did. It was just a simpler means to an end.
With that as the backdrop, there’s another overarching reality that calls into question whether Alphabet was truly interested in Snap at a price of $30 billion — Snap’s current market cap is less than $16 billion. Alphabet could make a very generous bid for the company, and still buy it for less than the originally touted figure.
The bulls will point out (and correctly so) that Spiegel owns the greatest amount of SNAP stock, and even more voting control of the company. If he doesn’t want the company sold, it doesn’t matter what most shareholders want. He’s in control, and so far, he doesn’t want to sell.
Still, not even the young Spiegel would turn down an offer too good to refuse. That offer just isn’t on the table.
Bottom Line for SNAP Stock
It’s more than believable that Spiegel truly wants to hold onto the company because he sees something enormous down the road that would make a $3 billion offer, or even a $30 billion offer, seem like chump change. By that same token, it’s not unbelievable that Alphabet was willing to shell out $30 billion at one time to own the platform when it was in its high-growth phase.
The flipside is, a whole slew of other CEOs were at one point where Spiegel is now, similarly convinced their product or service was worth more than it really was, ultimately punishing investors who proverbially drank the Kool-Aid. Examples of these companies include Groupon Inc (NASDAQ:GRPN), Fitbit Inc (NYSE:FIT) and GoPro Inc (NASDAQ:GPRO) … organizations that at one point were deemed prime buyout candidates, led by dangerously confident management.
You can bet the organizations that were mulling an acquisition of those outfits then are thanking their lucky stars now that no deal was ever made, as all three stories have soured.
The Snapchat story appears to be cut from the same cloth, with most CEOs of potential suitors all too aware of how things shook out with Fitbit and Groupon. They’re not going to buy a ship that has developed holes in the hull in the meantime, as so many have in the recent past.
In other words, if the only reason you own SNAP stock is on buyout hopes, don’t hold your breath. The $30 billion bid from Alphabet was likely only a one-time offer. Time has revealed Snapchat’s weaknesses.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.