Is Snap Stock Fairly Priced?

Snap’s stock (NYSE: SNAP) has lost approximately 38% YTD as compared to the 12% drop in the S&P500 index over the same period. Notably, the benchmark index for the technology sector, the NASDAQ-100 Technology Sector index, has lost 25% YTD. That said, at its current price of $29, the stock has a potential upside of 35% to its fair value of $39 – Trefis’ estimate for Snap’s valuation. 

SNAP is an American camera and social media company, which primarily generates revenue through advertising – Snap Ads and AR Ads (Sponsored Filters and Sponsored Lenses). It missed consensus estimates in the first quarter, despite a 38% y-o-y jump in the total revenues to $1.1 billion. The firm has two key user metrics – daily active users (DAUs) and average revenue per user (ARPU). Both the metrics grew 18% and 17% y-o-y, respectively. On the flip side, the profitability numbers further deteriorated in the quarter. The net loss increased to $360 million, compared to $287 million in the previous year. It was mainly due to a $77.5 million in other expenses primarily related to the unrealized loss on publicly traded securities classified.

The company’s total revenues increased 64% y-o-y to $4.1 billion in FY 2021. This was mainly driven by a 74% growth in the North American revenues, followed by a 45% rise in the international revenues. Further, DAUs grew from 265 million in Q4 2020 to 319 million in Q4 2021. Similarly, ARPU improved 18% y-o-y to $4.06 in Q4. Contrary to the growth in the top line, the company posted a loss in 2021. However, it was lower than the prior-year – down from $944.8 million to $487.9 million. The improvement was partly due to lower total costs & expenses as a % of revenues and partly because of other income of $240.2 million. The other income was mainly a result of realized and unrealized gains on strategic investments.

Altogether, Snap’s revenues are expected to touch $5.5 billion in FY2022. Further, its revenue per share is likely to be around $3.53, which coupled with a P/S multiple of 11x will lead to the valuation of $39.

Here you’ll find our previous coverage of Snap stock, where you can track our view over time.

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[1] Month-to-date and year-to-date as of 5/4/2022
[2] Cumulative total returns since the end of 2016

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