Shares of Snap Inc. jumped more than 13% on Tuesday as activist investor Irenic Capital Management acquired a 2.5% stake and is pushing for changes at the social media giant to boost its valuation.
The firm argues that Snap has significantly underperformed the Nasdaq by 444 percentage points since its IPO in 2017, noting that a dollar invested in Snap at its IPO would be worth 23 cents today.
“It is more than passing strange that Snap – with nearly 1 billion MAUs, reaching 75% of users aged 13-34 globally, with 350 million of those users engaging with AR tools, with users opening the app 40 times a day, with 25 million paying subscribers approaching $1 billion of ARR, with 5 billion+ snaps created daily, and with a massive library of image and video data, much of which is tied to geolocation – can be bought for just $7.2 billion,” the firm wrote in a letter to Snap co-founder and CEO Evan Spiegel. “To us, and I suspect to you too, this is a comically small sum.”
Irenic offered several recommendations that it believes will put the company on a path to reach $26.37 per share, which would give it a market cap of around $35 billion. It added that Snap’s “enviable demographics, its AI entry point and its AR franchise” should make the company worth even more.
Per an investor presentation, the firm is calling on Snap’s leadership to spin off or shut down its Specs business, which it estimates is consuming $500 million in cash per year, and focus on using AI to improve ad monetization.
It is also urging the company to rationalize its cost structure by cutting its workforce and adjusting its employee compensation program. The presentation says a workforce reduction of 1,000 employees would lower cash personnel costs by $30,000 per employee. It also argues that the company’s use of stock to compensate employees is too substantial and that it should move from a “purely time-based approach to 2/3 performance vested with $10 and $15 share price targets.”
Additionally, the presentation calls on Snap to replace its current AI partnerships with Microsoft and Perplexity with Gemini, OpenAI and Anthropic; improve corporate governance by giving Class A shareholders one vote per share; and take advantage of its discounted valuation by launching a $5.8 billion stock buyback program and using new cash and profitability to further invest in privacy, safety and parental controls.
“Snap should not continue doing what it has been doing. It’s not working,” the firm added. “We have no doubt that your second act, Saving Snap, the company, can be even more impressive than building Snap, the product.”
Founded in 2021 by Adam Katz and Andy Dodge, Irenic is an event-driven, special situations firm that invests in companies with initial market caps of less than $15 billion where it believes a larger opportunity exists.
The company said it acquired the Snap stake because of its “extraordinarly valuable” social network, whose “strategic value is only increasing.” It also said that it admires Spiegel as a founder and entrepreneur.
In a statement, Snapchat Board Chair Michael Lynton said the company welcomes shareholder input and regularly discusses strategy, capital allocation, and governance with shareholders.
“The Board and management team are focused on building a more efficient, profitable business while investing with discipline in our long-term road map,” Lynton said. “We’ve taken steps to improve performance, strengthen free cash flow, and offset dilution, and will continue to evaluate actions that drive long-term value for all stockholders.”
Snap shares are down 91% in the past five years, 47% in the past year and 43% year to date.
