In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser, Hidden Gems Canada's David Kretzmann, and Motley Fool Pro and Options' Jeff Fischer reflect on how a single blunder can suck a huge amount of value out of a company that lives and dies by its public image: An ad that ran on Snapchat trivializing Rihanna's domestic abuse at the hands of Chris Brown led her to tell her 60 million Instagram followers that she was deleting her Snapchat app. That induced a market cap plunge to the tune of a half-billion dollars.
The Fools ponder the company's long-term outlook. Then, they consider a somewhat counterintuitive move from Blue Apron (NYSE: APRN). A key value of the service is that it ships the food to your door. So why, exactly, would they think people might prefer to buy their kits in grocery stores?
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A full transcript follows the video.
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This video was recorded on March 16, 2018.
Chris Hill: More trouble for the parent company of Snapchat. An ad that was cleared to run on the Snapchat platform promoting a game called Would You Rather asked people if they would rather slap Rihanna or punch Chris Brown. Not surprisingly, Rihanna, who was the victim of domestic violence at the hands of Chris Brown, did not take kindly to this. What she did take to was Instagram, where she has more than 60 million followers, and announced that she was deleting the Snapchat app. And about $500 million worth of Snap's (NYSE: SNAP) market cap got deleted as well, Jason. Shares down around its IPO price of $17, although you and I were talking earlier, it's still amazing that it's given the benefit of the doubt.
Jason Moser: Yeah. Would you rather own Snapchat stock or Blue Apron? That's maybe a bit more of a reasonable game. That's not like they stepped in it there. I think, the biggest problem with Snapchat, the reason why you don't see that Snapchat logo in with all the other social logos on any website you visit, is because of the core purpose of the platform. It's why you don't see Messenger logos and WhatsApp logos. It's a messaging platform. It's not to say that they're bad at what they do, they seem to be pretty good at what they do. But monetizing it is a bit of a different game, so to speak. And the network effect isn't the same. It's one-on-one communication versus pushing information out there for the world to see. So, I'm astounded at the credit the market still gives the stock. I would just steer clear of it.
Hill: And Google has had their problems here and there with advertising of a questionable nature that has slipped through the cracks. But they fixed it and moved on. And it's Google.
Moser: You raise a good point there. Facebook, Google, I would say even Twitter, those are companies that can do something like this and more or less get away with it because of the core purpose platform serves. Snapchat doesn't have that luxury.
Jeff Fischer: Yeah, it's really hard to imagine how you build lasting and compounding value when your platform is vaporware, basically. Nothing sticks.
Moser: Vaporware? I've not heard that.
Fischer: You've not building communities, per se, you don't have a following that you're working on building. Meanwhile, the company's financials are incredibly destructive.
That's even after last quarter, which was better. Shares gained quite a bit because of last quarter. But, ad impressions were up some 500% last quarter, and that's very unlikely to be sustainable over the long term, that sort of growth, let alone maybe even that level that they hit. Meanwhile, just to run through numbers, because it's great radio, some $800 million in revenue, almost $700 million in costs of that revenue. But then, they're spending $3.5 billion -- so, what is that, 4X revenue? -- on SG&A and R&D. So, just, billions that they're losing.
David Kretzmann: Yeah, I don't think this next conference call is going to be a fun one for Snapchat, because I just have a hard time believing that this redesign has led to more engagement, and they've done nothing but dig their heels in, even with user feedback.
Moser: And we can make fun of them for going on that Spectacles II route, but the problem is, they have to, because they've defined themselves as a camera company. So, they've really put themselves in a very difficult position.
Hill: Blue Apron, the meal kit company that will ship food right to your home, announced a new strategy this week: selling their meal kits in stores. Blue Apron hasn't announced pricing or partners, just that this is coming later this year. What in the world are they doing?!
Moser: I feel like, as soon as I read this, there was an Onion article headline that popped into my head, like, the next step is that Blue Apron is going to resort to giving away free meals in order to boost sales. I just don't know what lever these guys can pull.
Hill: Their stock is down another 8% this week. David?
Kretzmann: It's ugly. Over the past year, they've burned $270 million in cash. They've had key leadership departures, they've pivoted with their strategy a couple times now. They're basically admitting here that their core subscription business isn't doing all that well, so we're going to do a completely new business line that has a lot more competition and we don't really have any differentiation.
Hill: A lot more competition and worse margins, right?
Moser: You know what really sucks here? There's investment banks out there that pushed them to go public. And we're not the smartest guys in the world here, but anybody could have seen this was a problem. They should not have pushed for them to go public like this without really recognizing that the business still has many challenges to overcome.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Chris Hill has no position in any of the stocks mentioned. David Kretzmann owns shares of Alphabet (C shares), Facebook, and Twitter. Jason Moser owns shares of Twitter. Jeff Fischer owns shares of Alphabet (C shares), Facebook, and Twitter. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Facebook, and Twitter. The Motley Fool has a disclosure policy.