Kylie Jenner May Have Cost Evan Spiegel More Than Miranda Kerr

Following a tweet from Kylie Jenner, who expressed her lack of interest in Snapchat, shares of the Snap (parent company of Snapchat) fell 6.1 percent yesterday, wiping out $1.3 billion in market value (and $250 million of CEO Evan Spiegel’s net worth).

While not mentioning any specific reason for her own disinterest, it’s clear that the firms redesign has possibly sparked a decline in user engagement.

Before Snap’s IPO, I wrote about how an unclear business model, low float and high valuation made Snap a risky investment going forward. What I didn’t realize at that time was a new type of financial risk, relevant to social media companies in our modern day — volatile consumer sentiment.

Can a change of design really cause users to change to another platform? It seems that it’s possible. Data shows that engagement has declined since the new app was implemented. A change.org petition (to which Snap recently replied to) is up to 1.25 million supporters (only about .8% of its 150 million daily active users globally, but relevant in itself). Will this cause Snap to change back to its former design? Maybe, but according to Snap’s response, will ensure an update to help users transition.

But the recent volatility proves that Snap is an incredibly risky stock, meaning its future is full of uncertainty. This high risk should cause investors to require a higher expected return in exchange for owning Snap shares. But even with the recent drop, this still doesn’t seem to be the case. Right now the company is trading at a price equal to 25.8x last year’s sales. While the company is growing rapidly, this is a relatively huge multiple (Facebook, while a more mature company (though has also proved itself), trades at about half that price (or 13x Sales)). Are investors being compensated for its fundamental risks? Likely not.

P.S.

While Snap CEO Evan Spiegel lost about $250 Million on the trend, after reporting a strong quarter he recently received a $636.6 million stock grant that will be payable through 2020. A contrast between performance and CEO pay is not a good sign.