It's been a rough month so far for Snap (NYSE:SNAP). Shares have lost 16% of their value month to date, with most of those losses being driven by a pair of Street analyst downgrades last week (investor sentiment was slightly buoyed by an upgrade). Meanwhile, CEO Evan Spiegel recently married supermodel Miranda Kerr and enjoyed a lavish honeymoon on a private island in Fiji, which costs tens of thousands of dollars per night. More recently, Spiegel has been reportedly sailing with friends across Europe.
That series of events is rubbing some investors the wrong way, as it perpetuates a perception that Spiegel doesn't really care about them or their financial woes. After all, we can't all enjoy massive IPO bonuses that are worth over half a billion dollars even with Snap shares hovering around $15 (approximately half their peak).
Page Six reports that Spiegel's gallivanting has angered investors; his "post-wedding bro trip" reportedly includes spending nearly $1 million to rent a yacht for a week. The outlet quoted one particularly upset shareholder as saying, "Where are the shareholders' yachts? Evan is chilling on the coast while Snap burns under Facebook competition. He's feasting on Italian delicacies while shareholders starve. 'Let them eat losses!'"
While taking a vacation for an important life event like a wedding is justifiable, the ceremony was nearly two months ago. The backlash is also a result of how Snap sold itself to investors in the first place. The company billed Spiegel as a "once in a generation founder" during its IPO roadshow, succumbing to the cult-of-the-founder trend and hoping to justify the lofty valuation levels of the $17 offer price.
I tend to think that characterization is overly generous, as Spiegel has yet to prove himself as a strong leader with long-term vision beyond getting lucky with a single ephemeral idea, but the inevitable (and intended) consequence is that investors will place a disproportionate amount of trust in Spiegel. If you sell a Snap investment as the Spiegel show, investors are going to be mad if he's not around.
It probably also doesn't help (unless you're short like I am) that Snap's first lock-up expiration is at the end of this month, which will flood the market with even more shares as early employees and investors unload. There's another lock-up expiration in mid-August. Currently, only 13% of shares are available in the market, but that will jump to 97% availability by the end of next month, according to JPMorgan analyst Doug Anmuth.
Snap has already made it abundantly clear that it doesn't care about investor input
The Snapchat operator has told investors it wants their money and nothing more by only selling non-voting Class A shares in the IPO. Any Class B or Class C shares that are held by insiders must first be converted to Class A before they can be sold to public investors, further consolidating voting power among insiders.
Frustrated with Spiegel's leadership style, or lack thereof? Tough luck. Want to vote on or nominate directors to represent shareholders? Nope. What if Snap has a terrible proposal at its next annual shareholder meeting? Deal with it. If investors are unhappy with management or corporate governance, the only real recourse that investors have is voting with their wallets -- when they choose to buy or sell shares.
Spiegel and fellow co-founder Robert Murphy control 89% of all voting power combined between just the two of them, which means the board is in their collective pocket, and the board determines things like their compensation. If either Spiegel or Murphy were to die under unexpected circumstances, their Class C shares would convert to Class B shares nine months later, further consolidating voting power with the surviving co-founder to the point where he has absolute control. (This would also occur if either Spiegel or Murphy sells enough shares to bring their number of Class C shares down to less than 30% of Class C shares outstanding.)
Given this fundamentally shareholder-unfriendly class structure, it's hard to envision Spiegel actually caring that much about Snap investors, beyond how Snap share prices affect his own personal net worth.
Evan Niu, CFA, owns shares of Facebook. Evan Niu, CFA, has the following options: long January 2019 $20 puts on Snap Inc. and long January 2018 $120 calls on Facebook. The Motley Fool owns shares of and recommends Facebook. The Motley Fool has a disclosure policy.