SNAP: Where Are The Adults?

Snapchat (ticker: SNAP) is the eighth largest social media platform in the world, boasting nearly a BILLION monthly active users (946 million to be exact).

The company has grown annual revenue from $100 million to almost $6 billion in the last decade.

Despite those impressive stats, the stock has delivered an abysmal performance since its 2017 IPO, falling by 80% and over 50% in the past year alone:

There are many reasons investors have abandoned the company’s stock, including:

• Larger social media peers have grown faster, as advertiser dollars continue to concentrate on a few large platforms such as Meta & Google

• SNAP’s user base skews young, making monetization more difficult

• SNAP struggled to generate positive free cash flow for most of its history

• SNAP has invested in side projects that have failed to deliver returns

• SNAP’s valuation has rarely been cheap

• SNAP’s founder CEO Evan Spiegel maintains super-majority voting powers

• SNAP’s shareholders have been diluted heavily by executive & employee stock grants

Most of those reasons are valid but also backward looking.

SNAP is now generating rapid revenue growth from subscription products like Snap+ and photo/video storage, and free cash flows are positive and growing over the past year.

Sentiment is washed out with the stock at an RSI below 20 and valuation now looks downright cheap:

SNAP recently announced a new subscription service for creators that could become a rival to OnlyFans if they are successful.

SNAP is also introducing a new version of their AR glasses this year that they believe can fundamentally change how people use AI in their daily lives.

Those are “call options” on growth that the market is giving zero credit for today.

All of these factors point to a contrarian value / turnaround setup in SNAP stock, with multibagger upside potential.

However, there is still one massive issue that’s keeping SNAP permanently in the penalty box…

🚨 The Glaring Governance Problem

It’s not uncommon to see founder CEO’s of public companies retain supervoting rights.

We see this with Mark Zuckerberg at Meta, Larry Page & Sergey Brin at Google, Tobi Lutke at Shopify, and even Warren Buffett at Berkshire Hathaway.

Unlike SNAP though, those other companies have generated tremendous returns for shareholders.

With SNAP, shareholders have no ability to hold management accountable for value destruction.

SNAP doesn’t even file an annual proxy outlining compensation policies and Board structure.

That’s bad enough but there’s an even worse problem for SNAP shareholders: excessive stock based compensation.

The level of ongoing restricted stock grants given out to SNAP employees & executives is so high that it effectively absorbs all the economic value created by the business.

There is nothing left for shareholders after accounting for these stock grants.

And the problem got worse in 2025 not better.

We’ve been tracking SNAP’s employee stock grants and here’s the breakdown for the past three calendar years:

• 2023: 148.7 million RSUs granted

• 2024: 89.2 million RSUs granted

• 2025: 175.2 million RSUs granted

Even at today’s depressed stock price, the 2025 grants alone are worth more than $850 million.

SNAP only generated $457 million in free cash flow in 2025 and just $219 million in 2024!

Stock compensation in 2025 alone represented more than 10% of the entire company’s outstanding shares.

This is a shocking, piggish figure for any company much less a publicly traded one.

Where are the adults in the Boardroom at SNAP? They have completely abandoned their fiduciary duties.

Meanwhile, SNAP’s CEO Evan Spiegel likes to hype up the fact that the company is buying back shares in the open market to reduce the level of stock dilution.

That merely masks the true dilution by slowing share count growth while consuming all free cash flow and even some of the excess cash from the balance sheet.

Shareholders cannot participate in any meaningful upside until SNAP management stops this brazen theft.

🧐 Envisioning The Opportunity

It’s understandable why many institutional and retail investors have given up on SNAP.

However, success in investing comes from correctly positioning for the future rather than the past.

We see the potential for SNAP to make needed changes and rise from the ashes.

The good news is that SNAP’s biggest problem is self inflicted but fixable.

Evan Spiegel is theoretically incentivized to fix it, as he currently owns roughly 140 million shares of SNAP (mostly via Class C supervoting shares).

Five years ago that stake was worth $8 billion and today it’s worth less than $700 million.

Don’t cry for Evan though, as he’s sold more than 80 million shares since IPO and is likely a billionaire regardless.

Still, he’s leaving significant value & legacy on the table by letting SNAP stock sink into oblivion.

Will the company fix this core issue?

It’s not a certainty…

But the stock is sitting near all time lows despite SNAP making progress in subscriptions, striking AI partnerships, improving profit margins, and nearing launch of new AR glasses.

The conversations between Evan, the Board, and remaining institutional shareholders have to be heating up around the governance and capital allocation issues.

The whole situation creates a coiled spring with the potential for big gains should changes get made.

The reward to risk is skewed much more positively down here at depressed prices.

If governance and capital allocation improve, SNAP’s valuation metrics appear quite cheap.

Price to earnings, price to cash flow, and price to sales multiples are low, but perhaps the most glaring figure is market cap per active user:

Today SNAP trades at just a fraction of every other social media peer!

📈 The Trade

We purchased some SNAP common stock recently as well as some long term SNAP call options (”LEAPS”) expiring in 2027 & 2028.

With the right combo of catalysts we believe the stock can triple within two years in a moderate bull case.

The simple math on that is growth to $8 billion of annual revenue by 2028 and the stock re-rating back to a ~3X price-to-sales multiple (~$24B market cap), where it traded in early 2025.

The $5 and $7 strike calls for January 2027 and January 2028 could deliver 4-6X+ returns in that type of scenario.

More aggressive bull case scenarios are possible but we don’t see enough proof yet to support those targets.

Potential future catalysts for the stock include:

• SNAP announcing significant cuts to stock compensation grants

• SNAP insiders pausing automated insider selling programs

• SNAP insiders purchasing stock with their own money in the open market

• Spinoff of Specs (AR glasses) division with an external capital raise at a high valuation to reduce the funding burden

• SNAP delivering higher than expected revenue & cash flow growth in 2026

• SNAP striking revenue deals with other AI companies

• Activist investor engagement with SNAP’s CEO & Board

The tricky part here is timing: we don’t know if and when any of these catalysts will actually play out.

There are risks too: advertising slowdowns, user engagement declines, youth social media bans, rising expenses, side project distractions, and ongoing dilution to name a few.

So we are sizing our total position at a single digit % of risk capital, with the majority in SNAP common stock.

As always, you must decide what makes sense for your situation and risk tolerance.

Once in awhile we spot potential in a stock that is so hated & beaten down that even a small fundamental improvement can cause an explosive change in sentiment and stock price.

SNAP is one of those, and now we wait for that glimmer of positive change to emerge.

⚠️ Disclaimer