Why Snap’s Stock Looks Overvalued

by Trefis Team
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Snap (NYSE:SNAP) has seen its stock jump 3x in value since the beginning of the year after the camera company quelled investor fears of a stagnating user base by reporting steady growth in this key metric over recent quarters. However, we think that investors have turned overly optimistic about the company’s stock and estimate Snap’s valuation to be closer to $13 per share, which is 15% below the current market price.

Snap’s flagship product, Snapchat, is a camera application that helps people communicate visually with friends and family through short videos and images called Snaps. The company’s products are Camera, Friends Page, Discover, Snap Map, Memories and Spectacles. You can look at our interactive dashboard analysis ~ Snap’s valuation: Expensive or Cheap ~ for more details, and also modify our forecasts for the company’s key metrics to understand how changes impact the company’s stock price.

#1. Estimating Snap’s Total Revenues:

  • Total Revenue increased from $0.40 billion in 2016 to $1.18 billion in 2018, and is expected to increase by 32.3% to $1.56 Billion in 2019
  • Our Interactive Dashboard Analysis, How Does Snap Make Money?, provides an in depth view of Snap’s Revenues.

 

#2. Determining Snap’s Sales per Share:

  • Sales per share has increased from $0.41 in 2016 to $0.91 in 2018, and we estimate it to jump to $1.20 in 2019
  • Sales per share’s rise in 2018 can be attributed to higher Revenues which was partially offset by higher Shares outstanding.

 

#3. Estimating Snap’s Share Price:

Our Price Estimate of $13 for Snap’s Stock is based on our Detailed Valuation Model for Snap, and implies a 11.1x P/S Multiple on expected 2019 Sales per Share of $1.20.

Our interactive dashboard also captures how Revenue and P/S multiple for Snap compare with competitors Facebook and Twitter.

 

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