Snap Stock Is Fairly Valued
Snap’s stock (NYSE: SNAP) has gained roughly 26% YTD as compared to the 7% rise in the S&P500 index over the same period. That said, at its current price of $11, it is trading at the same level as the fair value of $11 – Trefis’ estimate for Snap’s valuation. The company posted mixed results in the fourth quarter of 2022, with earnings beating the consensus but revenues missing the expectations. It reported total revenues of $1.3 billion, marginally above the year-ago period. Snap, like its peer Meta, suffered in 2022 due to the Apple iOS privacy update, restricting user tracking, and a drop in digital ad spending due to tough macroeconomic conditions. The decrease in digital spending was also evident on average revenue per user (ARPU), which declined by 15% y-o-y to $3.47 in Q4. However, daily active users (DAUs) increased 17% y-o-y. On the cost front, operating expenses as a % of revenues witnessed a unfavorable increase, mainly due to higher research & development expenses. It resulted in a net loss of $288.5 million, down from a net income of $22.6 million in Q4 2021.
The top line increased 12% y-o-y to $4.6 billion in FY 2022. It was driven by a similar growth in both the North America and International markets. Notably, the company derives close to 70% of the total revenues from the North America region. The segment has a high ARPU ($32.30), despite DAUs of around 99.3 million. In comparison, the international segment has a low ARPU ($5.48) and DAUs of 255 million. Altogether, the firm posted a net loss of $1.43 billion in the year – up from $488 million in 2021. It was due to higher operating expenses, which increased from 1.17x of revenues to 1.30x.
Moving forward, the consensus estimates for Q1 revenues and earnings are $1.01 billion and -$0.01 respectively. Overall, we estimate Snap’s revenues to touch $5.01 billion in FY2023. Additionally, SNAP’s revenue per share (RPS) is likely to improve to $3.11, which coupled with a P/S multiple of just below 4x will lead to the valuation of $11.
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