I would expect SNAP to trade at a price to earnings growth ratio ('PEG') of around 2x - equating to 11.4x sales in 2030. I expect SNAP to be able to earn at least 35% net margins long term. And indeed - the 54.7% gross margin in the recent quarter was a steep improvement of the 45% gross margin of the prior year's quarter. SNAP's gross margin was low at 54.7%, but cost of revenue consists primarily of cloud operation costs, suggesting that gross margins should improve with scale. This analysis shows that if SNAP can't meet the projected numbers, then it wouldn't have been because of its balance sheet. This strong cash balance helps de-risk the balance sheet, though it should be noted that SNAP has reduced its cash burn from operations from $690 million in 2018 to only $168 million last year. These convertible notes have conversion prices between $21.68 and $89.25 per share. SNAP has $3.4 billion in cash & equivalents versus $2.6 billion in convertible notes. SNAP might not appear cheap at 31x forward sales, but the company is expected to sustain strong growth rates over the next decade. Will SNAP's future ARPU more resemble FB, suggesting 9x upside, or TWTR, suggesting only 1-2x upside? Is SNAP Stock A Buy, Sell, or Hold? SNAP has been around for approximately half of the time of both FB and TWTR. The main thesis for buying SNAP is via comparison with the likes of Facebook (FB) and Twitter ( TWTR).Īs we can see above, SNAP's average revenue per user ('ARPU') lags both TWTR and FB. While one might intuitively think that this is a small market, SNAP notes that many important milestones occur in this age range. SNAP has successfully found its niche among the 13 to 34-year-old population. SNAP has been able to monetize the growing user base through rapidly increasing revenues.Īnother earlier knock on SNAP was its low gross margins, which stood at 35% in 2018, but that has improved dramatically to 54% last year. Since then, however, SNAP has grown DAUs with incredible consistency. SNAP saw daily active users ('DAUs') decline for several quarters in 2018, which caused investors to worry about future growth rates. To understand why SNAP is rising we must first understand why it was falling in the first place. SNAP has since "snapped" back in style, as it has transformed its image from broken tech IPO to a secular growth story. SNAP Stock PriceĪfter closing its first day of trading at $24 per share in 2017, SNAP soon found itself trading in the low single digits by the end of 2018. I expect SNAP to perform very strongly over the next decade, but hesitate to recommend the stock in light of stronger buying opportunities in the social networking space. This older, larger SNAP has already reaped the benefits of scale, as gross margins have expanded materially since it came public. Yet the recovery was already beginning prior to the pandemic, as the pandemic merely accelerated what was already a successful turnaround in user growth. Snapchat ( NYSE: SNAP) has been a huge pandemic winner, delivering 7x returns since the onset of the pandemic. We expect the same to drive the second-quarter FY2021 results as well.PressureUA/iStock Editorial via Getty Images They have now launched Spotlight in a total of 14 countries including three new countries - India, Mexico, and Brazil. In March 2021, over 125 million Snapchatters used Spotlight, the company’s newest platform surfacing the most entertaining Snaps from the community. In the past year the company has increased engagement as daily average users increased across quarters. The company has reported better than expected revenues and earnings figures in each of the last four quarters. We expect SNAP to beat the consensus estimates for revenues and earnings. The company’s products are Camera, Friends Page, Discover, Snap Map, Memories, and Spectacles. 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. Snap (NYSE: SNAP) stock is scheduled to report its fiscal Q2 2021 results on Thursday, July 22. Photographer: Michael Nagle/Bloomberg © 2018 Bloomberg Finance LP signage on the floor of the New York Stock Exchange (NYSE) in New York.
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