There’s no bigger cheerleader for new companies than me. I even get behind the longshots, if only to keep the entrenched players honest. That’s why I hoped Snap Inc (NYSE:SNAP) could rattle the cages of Twitter Inc (NYSE:TWTR) and Facebook, Inc. (NASDAQ:FB) when Snap stock reached a critical mass a couple of years ago.
I did this despite my doubts it would be able to do so. Anybody who bought into SNAP stock at any point since the March-2017 felt the same.
Gotta be honest though, CEO Evan Spiegel is making it amazingly difficult to remain supportive.
The latest chapter in the sordid saga? Rather than close the chapter on the camera/glasses combo called Spectacles that ended up forcing a $40 million write-down a couple of quarters ago, Spiegel is doubling down on the idea.
The next generation of Spectacles will be water resistant, and the generation after that will be able to film videos in 3D.
They’re a technological feat to be sure. Current and would-be owners of SNAP stock should also know, however, that they’re a solution to a problem that doesn’t exist and a product nobody was asking for.
And it’s not the first time we’ve seen the company make a misguided decision.
Still Missing the Point
Snapchat has had several brushes with being a great platform. Everytime it gets close, though, somehow the company finds a way of snatching defeat from the jaws of victory.
Case in point: You’ve probably heard it already… the latest reformat of the mobile app hasn’t been well received. That’s the polite way of saying users hate it. More than 1.2 million people made a point of saying so.
Spiegel justified the switch ultimately as a means of better monetizing the app. That’s fine; the whole point of any venture is to make money, even if it ticks some users off. I have no problem with that.
What I do have a problem with is the rhetoric that came with the redesign. In response to learning so many people disliked the app’s overhaul, Spiegel quipped:
“The complaints we’re seeing reinforce the philosophy. Even the frustrations we’re seeing really validate those changes. It’ll take time for people to adjust, but for me, using it for a couple months, I feel way more attached to the service.”
Broadly speaking, the point is well taken. What’s concerning is ignoring the fact that, more profitable or not, a bunch of people were frustrated enough to complain, and Spiegel never stopped to think that for every one user that said it, ten more are thinking it. In fact, some data from Stifel says the redesign has already crimped engagement, even if only modestly so far.
So much for that validation Spiegel was touting.
It’s also a bit alarming to think a company’s CEO is making product decisions based on his own personal, biased experience.
And as a reminder, he was similarly excited about Spectacles in early October, saying at the time the company had exceeded its sales goal for them. A month later, Snap told shareholders it had to book a big charge due to “excess inventory reserves and inventory purchase commitment cancellation charges.”
Maybe, just maybe, tepid demand for the first batch of spectacles had nothing to do with a lack of water resistance and an inability to film things in 3D.
Bottom Line for SNAP Stock
None of this is to suggest Snap and Evan Spiegel haven’t had a few victories along the way. The fact that Facebook’s Instagram copies the bulk of Snaphat’s features as they’re implemented is actually quite a compliment. And, Spiegel isn’t afraid to try new things. Many executives would be.
The victories just aren’t big enough or frequent enough to overcome the missteps though… missteps that sure look like Spiegel assumes every existing potential Snapchat user thinks and behaves exactly the same way he does, and want what he likes.
That kind of seat-of-the-pants flying might work in the startup stages, but sooner than later it gets in the way of gaining scale compared to more refined rivals.
The clincher: While Spiegel may be more than happy to use his own product, he’s not exactly keen on eating his own cooking. The CEO has sold about 4.2 million shares of SNAP stock just since the middle of last month, almost as quickly as they were acquired and/or became free-trading.
The sheer speed of his liquidation is a red flag, and even if it was just unlucky timing, it’s bad optics to investors that are looking for reasons to like SNAP stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.
