What Can We Learn From Snap Inc. Insider Trading Activity?

Snap Inc. shareholders may need to properly fasten their life jackets in the months to come. The parent company of the zoomer-preferred social networking app Snapchat has seen its stock price drop dramatically from highs above $80 last fall to a measly $7.75 as of this writing, wiping out an astonishing 90% in shareholder value in the process. Just this past Friday, it faced a 26% drawdown during trading hours after announcing yet another revenue drop. While facing issues from a number of fronts, how have Snap Inc's insiders responded during this tumultuous period? Does their response point to an anticipated steadying, or rather a faster-sinking ship in the weeks and months to come?

Just from looking at the stock price chart, one gets a sense that Snap has had to endure a considerable number of hurdles this year, and they would be correct. Perhaps the most troubling has been competition from the ever-popular app Tiktok. Projections from earlier this year showed Tiktok had already surpassed Snapchat in ad revenue, with Tiktok projected to bring in $11 billion in 2022 compared with less than $5 billion for Snapchat.

(Anyone who talks to zoomers will not be surprised by this. The next time you do, I recommend asking them the following: "How much time do you spend browsing your phone before going to sleep, and how much of that time is spent on Tiktok versus Snapchat?" You may be surprised and even shocked at what you hear. If you really want to be blown away, you can also ask as a follow-up, "what is the longest amount of time you've spent on Tiktok in one sitting?")

But competition has not been the only issue. Earlier in August, Snap announced it was cutting 20% of its workforce and scrapping multiple projects in an effort to save $500 million in annual costs. It also had two executives depart the company for Netflix. The company indicated in an investor letter Thursday that it was assuming to see no revenue growth this quarter compared with 12 months ago. 

How have SNAP insiders reacted?

Using insidersentiment.com, we can enhance our outlook for the company by looking at how Snap insiders have responded during this long downturn. The picture below shows insider purchases and sales for the company from the beginning of 2021 until now:

Active subscribers of insidersentiment.com can quickly and easily generate these charts for any public company. The bars coming down from the top indicate insider sales, while the stock price is plotted in the red line. As shown by the numerous vertical red bars, you can see that Snap insiders have sold consistently throughout this period, with increased selling concentrated right around the peak in stock prices that occurred in summer 2021. Based on the frequency with which they sold in this period, Snap insiders likely had some idea the stock price was peaking at that time.

This kind of prescience by insiders is not unusual to see. While insiders cannot predict the future, they see the big picture very well. They understand the competitive environment and are able to anticipate the future direction of the stock price better than the average investor by combining their specialized knowledge of their company and industry with macroeconomic developments. Hence, often they are able to buy and sell at the right times. 

Taking a closer look at the sales, we see there are several relatively larger sales interspersed regularly throughout. These are likely the result of a regular, predetermined trading plan, called a Rule 10b-5 plan. In the most recent large sale, CTO Robert C. Murphy sold 900,000 shares at an average price of almost $10 per share. Not bad for a single trading day, we might suggest.

Several recent insider trades were not associated with a prescheduled Rule 10b-5 plan, however. This includes Controller Rebecca Morrow's sale of 7,782 shares on October 17th as well as Chief Business Officer Jeremi Gorman's sale of 36,816 shares on September 16th. This shows a committed effort by Snap insiders to sell shares even as the stock price approaches lows not seen in over 4 years. 

Overall, the continuation of the pattern of regular insider selling into October 2022 indicates that insiders view an extension of the regular, bearish trend that the company has experienced since summer 2021.

If you found the above content informative, you may be interested in the new service we just launched in collaboration with University of Michigan Ross School of Business Professor Nejat Seyhun. Intended for money managers, day traders, and investors of any size, insidersentiment.com tracks aggregated insider trading indicators for a variety of investment styles and can help you stay ahead of the market. You can also follow this free blog, where we post about insider trading in general, recent economic trends, and analyze the insider trading activity of trending companies.

Authors’ disclosure: This article expresses the authors’ opinions. None of the authors have any business relationship with the company whose stock is mentioned in this article. None of the authors have any stock or derivative position in the company mentioned in this article, nor any plan to open such a position within 72 hours. The article does not constitute any recommendation or advice as to whether any investment is suitable for any particular investor. Consult with your licensed financial advisor before making any investment decision.