Yet another company is looking to join the growing list of stock splits this summer. So far, Snap (NYSE:SNAP) stock has weathered an extremely difficult year. But it isn’t over yet. Now, the social media company wants to follow in the footsteps of companies like GameStop (NYSE:GME) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL), both of which recently opted to split their stocks.
Unlike these companies, however, SNAP doesn’t have a clear path to splitting. The proposed stock split only has approval from the company’s board if shares reach the $40 mark. That’s a long way from the current price of less than $10.
Here’s what investors should know moving forward.
Inside the SNAP Stock Split
It’s definitely unusual to propose a stock split that hangs on whether or not shares can surge 300%. But that isn’t the only strange thing about Snap’s plan of action. The company is only proposing a 2-for-1 stock split, meaning investors will only be awarded one more share for every share they own. Other companies that have recently enacted splits — or are planning to — have opted to create much larger payouts; both Amazon (NASDAQ:AMZN) and Alphabet enacted 20-for-1 stock splits.
When news of the intended split first broke last week, Barron’s reported that SNAP stock rose “as high as $83.34 in the past 12 months” but had fallen 30% on disappointing earnings. Since then, the stock has only fallen further.
How bad did Wall Street find Snap’s second-quarter earnings report? Bad enough for 14 analysts to downgrade their SNAP stock price targets. Per InvestorPlace contributor Larry Ramer, revenue came in below estimates in Q2, among other disappointments.
Now, 22 analysts on TipRanks rate SNAP stock as a “hold” while 10 analysts maintain “buy” ratings. Even their highest price target — $35 per share — isn’t high enough for shares to reach the proposed split price. Credit Suisse analyst Stephen Ju lowered his target to $35 following the Q2 report.
What Comes Next?
It has been a difficult season for social media companies in general, but Snap’s declines far outpace peers like Meta Platforms (NASDAQ:META) and Twitter (NYSE:TWTR). The company’s tentative decision to split the stock does make some sense. However, the split just doesn’t seem likely. SNAP stock has a lot of ground to cover before gets close to $40.
Athough SNAP stock shot up ahead of the Q2 earnings, shares quickly fell back once investors learned just how disappointing the quarter had been. Now, the proposed stock split seems like a last-ditch effort to save investor enthusiasm.
On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.