Widely followed celebrity Kylie Jenner sends out a tweet. Snap Inc (NYSE:SNAP) stock falls.
I’ve seen a lot of weird things in the stock market. But that has to be among the oddest. Kylie Jenner sent out a tweet essentially saying that the Snapchat app redesign sucks while loosely implying that she doesn’t use the app anymore.
Then Snap stock proceeded to lose $1.3 billion in value (or roughly 6%).
A Tweet Isn’t Snap’s Only Problem
To be clear, the tweet alone did not knock out $1.3 billion in value.
This has been building for some time as more and more negative feedback on the app redesign has come through the pipeline. Ever since the redesign rolled out, App Store reviews of Snapchat have tanked. A petition to change the app back to its old format has garnered nearly 1.25 million signatures. Even Wall Street firm Citi downgraded Snap stock to “Sell” after taking in the plethora of bad reviews.
All in all, Kylie’s tweet was just the straw that broke the camel’s back.
In addition to Snapchat’s update woes, Alphabet Inc (NASDAQ:GOOG) recently got into the Stories game by launching AMP Stories. Snap’s Chief Executive Officer Evan Spiegel just sold $50 million worth of SNAP stock, his first personal stock sale since Snap went public. And Vice President of Sales, Jeff Lucas, just left the company, marking the seventh executive to leave the company since last year’s IPO.
In other words, the narrative has quickly turned on SNAP stock. Its almost as if no one remembers the blowout quarter the company reported a few weeks ago.
But SNAP stock did have that awesome quarter. And this stock could still get to $40 in 5 years. But the near-term will be choppy.
Here’s a deeper look.
Why Snap Will Survive the Redesign Onslaught
All the noise about the redesign is just that… noise.
We saw all the same complaints back in 2006 when Facebook Inc (NASDAQ:FB) rolled out News Feed. Users formed protest groups, calling the News Feed update “intrusive”, with some groups garnering in excess of 100,000 supporters within a day. Users boycotted Facebook. It was a mess.
A mess that looks a lot similar to the current Snap debacle.
News Feed went on to shake off those early concerns and become the staple for not just Facebook, but all of social media. Facebook shook off those concerns and turned into a $500 billion company.
Snap, too, will shake off this early resentment. Users just don’t like change. But this change is necessary and logical.
The company is further separating social from media, a key distinction in today’s overly-cluttered social media landscape. This move also sets them up to be the mobile TV on the Discovery side, which is a huge avenue for digital ad growth over the next several years.
Moreover, everything is algorithmically sorted. While that isn’t what Snapchat users are used to, it is better because it is a data-driven approach to showing consumers what they want to see. After all, Instagram Stories are algorithmically ranked.
All in all, Snap will survive this redesign onslaught.
Bottom Line on SNAP Stock
Longer-term, I remain bullish on Snap’s ability to morph into a go-to digital advertising platform for small- to medium-sized businesses that don’t necessarily need max reach advertising, but do need targeted advertising. Facebook is decreasing the amount of ad real estate on its platform, which will cause the price of that real estate to go up.
All the sudden, small- to medium-sized businesses won’t be able to afford Facebook ads anymore. Of those players, the ones with core audiences in the 13 to 30 year old range will move their ad dollars to Snapchat.
If Snapchat capitalizes on this opportunity (recent quarterly results, which included a nice bump from auction-based ads, imply that they are), then SNAP stock could get to $40 in 5 years. See the math here.
Consequently, this is a speculative long. If you believe in Snap’s ability to attract small- to medium-sized advertisers, then buy the stock. If not, stay away.
But whatever you do, ignore the near-term noise related to the redesign.
As of this writing, Luke Lango was long FB, SNAP, and GOOG.