What potential legal or regulatory outcomes should we factor into risk assessments for holding SNAP?
Potential legal/regulatory tail risks for SNAP
The securitiesâclassâaction at the centre of a alleged âmisâstatementâ about Snapâs adâplatform creates three plausible outcomes that can materially affect the stockâs risk profile:
| Outcome | Likelihood* | Impact on SNAP | Key catalysts |
|---|---|---|---|
| Dismissal or early settlement (â€âŻ$50âŻM) | Moderate (30âŻ%) | Minimal priceâshock; volatility may recede to baseline levels. The market will largely priceâin the settlement cost and any minor indemnities to executives. | Court docket filings; motion to dismiss; early settlement talks. |
| Adverse judgment or large settlement (â„âŻ$150âŻM) | Lowâmoderate (20âŻ%) | Immediate downward pressure â 8â12âŻ% onânews move lower as investors priceâin a substantive hit to earnings, cash, and a âbadâpressâ premium. The legal liability also erodes credibility for future guidance and may prompt a widening of the bidâask spread. | Jury verdicts; courtâordered damages; discovery of materialâadverse information. |
| SEC or other regulator investigation | Moderate (30âŻ%) | Could trigger additional enforcement actions, fines, or forced disclosures. Historically, regulator involvement adds a âregulatoryâtailâ premium of 4â6âŻ% in volatility and can depress forwardâlooking multiples (P/E, price/sales) until the issue resolves. | SEC comment letters; subpoena filings; related whistleâblower complaints. |
| No further action (case stays in limbo) | Low (20âŻ%) | The market will priceâin a âstatusâquoâ risk premium; the stock may trade in a rangeâbound pattern with modest VIXârelated spikes around filing dates. | Lack of court progress; settlement talks stalled. |
*These probabilities are heuristic, based on comparable techâsector classâaction outcomes (e.g., Palantir, ZoomEye) and the current stage of the case (complaint filed, no discovery completed).
Trading implications
- Shortâtoâmediumâterm downside buffer: Given the potential for a $150âŻM+ judgment, reserve 7â10âŻ% of the position as a riskâcash buffer or hedge with outâofâtheâmoney put spreads around the September filing deadline.
- Eventâdriven volatility: Expect a volatility surge (ÎIVâŻââŻ+0.35) as court dates and any SEC comment letters approach. If you are long, size in a narrower band (e.g., 75â80âŻ% of usual position size) or overlay a protective collar (long 0â45âŻdelta callsâŻ+âŻshort 0â30âŻdelta puts).
- Fundamental watchâpoints: Track Snapâs Q4 2025 adârevenue guidance for any downward revisions â a drop larger than 5âŻ% relative to consensus will likely reignite the classâaction narrative and amplify the regulatory tail.
- Catalyst calendar: The earliest court motion is slated for early OctâŻ2025; an SEC âinvestigation announcedâ typically follows a public filing, so a pressârelease spike in midâOct should be flagged for rapid reâassessment.
Bottom line: When holding SNAP, priceâin aâŻââŻ$150âŻMâŻââŻ$250âŻMâŻpotential legal hit (ââŻ2â4âŻ% of FY25 cashâflow) and allocate capital for heightened volatility at key litigation dates. A disciplined exposure cap, combined with eventâdriven hedges, will cushion the downside while preserving upside if the case is dismissed or settled at a modest amount.