By Ryan Augusta
The stock prices of popular hardware tech companies, such as Apple, Samsung, or Microsoft, are far less sensitive to change than their software counterparts. These hardware companies are sued regularly, and often sue each other in highly publicized lawsuits, yet their stock prices rarely fluctuate. A lawsuit that results in a billion dollar award is not substantial enough to cause a company with a nine-figure valuation to significantly feel its effects, even when damages are awarded to its top competitor. Bad publicity is far more damaging to a software company’s stock value, especially when the company is still a relatively new player in the tech world.
Snap, Inc., the company that owns the smart phone application Snapchat (“Snap”), is another large, tech-based, social media company that went public in 2017, but has failed to live up to expectations. On February 21, 2018, the Twitter account of Kylie Jenner was the source of a post that criticized a widely unpopular update of Snapchat. This tweet, due to Jenner’s massive following, triggered a 7.2% drop in Snap’s stock value, and losses were estimated at $1.3 billion. Snap then caused its own misfortune in March, when it ran a “story” that made a tasteless joke of domestic violence at the expense of singer Rihanna. Snap’s stock unsurprisingly dropped 4% for an estimated $800 million loss. In late April, Snap announced that it was redesigning its app again. The announcement triggered a 9.5% drop in just one day, and Snap’s stock remains at a fraction of its 2017 initial price, due to decreased user rates during this time period.
The reason that companies like Apple and Samsung can continuously sue each other without influencing the value of their stocks is because these lawsuits do not affect public perception. The unfortunate combination of Snap’s recent celebrity debacles and complete design overhaul have rubbed users the wrong way and the effects are quite apparent. When the actions of a software company continue to disgruntle its users, investors take notice. When user numbers decline on an application, there is little to be done to slow the process. Bigger companies like Apple have the advantage of consumer reliance on their products. Anyone can delete an application, but few people are willing to throw away an iPhone that cost them $500-$1000. Consumers invest significant amounts of money into hardware for numerous reasons; to stay relevant with the times and because they have become dependent on the functionality of the product itself. Because of this, stock prices thrive. The very nature of a product plays a crucial role in whether or not bad publicity will have long-term effects on the product’s stock value.