Snap’s Stock Rallied On New Offerings – Will It Slow Down Now?
[Update 09/03/2021] Snap Update
Since the start of 2021 Snap’s stock has gained 48% to $74. The stock has gained on the back of positive Q1 and Q2 results as well as positive traction for its new content offerings. For Q2 2021, revenue increased 116% y-o-y to $982 million while net loss reduced by more than 50% to $152 million compared to the same period of the previous year. On the content side, the company aired eight new and renewed Snap Originals, including Swae Meets World, a documentary featuring American musician Swae Lee as he prepares to launch a solo album. They also launched 177 new International Discover Channels, including 36 in the UK and 24 in India, one of which is a partnership with Sony Pictures Network to launch five Shows. The Spotlight platform that surfaces the most entertaining Snaps from the community has continued to gain traction as daily active users grew 49% and the average daily content submissions more than tripled over the quarter.
We expect Snap’s revenues to rise by 61% to $4 billion in 2021 and further by 35% to $5.4 billion in 2022 as more and more content offerings gain traction across countries. This will increase its revenue per share to $3.57 in FY 2022 which coupled with the P/S multiple of 22.8x will lead to Snap’s valuation of around $81, which is 9% above its current market price.
[Update 06/23/2021] Snap’s Stock To Gain On Content?
Snap’s stock has gained 288% since the end of 2019 and 26% since the end of 2020 to $63 currently. The stock has risen gradually since the Q1 2021 earnings, bar a small dip in first half of May which was in sync with the overall market. For Q1 2021 the company recorded a revenue rise of 66% y-o-y to $770 million while the operating cash flow improved by $131 million to $137 million. DAU’s were 280 million in Q1 2021, an increase of 51 million (22% y-o-y). The company continued to experience traction in its content offering. In March, over 125 million Snapchatters used Spotlight, a platform surfacing the most entertaining Snaps from the community. They also launched Spotlight in three new countries-India, Mexico, and Brazil-making it live in a total of 14 countries.
We expect Snap’s revenues to rise by 61% to $4 billion in 2021 as more and more content offerings gain traction across countries. This will increase its revenue per share to $2.66 which coupled with the P/S multiple of 29x will lead to Snap’s valuation of around $77, which is 20% above its current market price.
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[Updated 03/02/2021] Snap Update
After rallying 298% since the end of 2019, Snap’s stock has reached its near term potential. Snap is a camera and social media company which has developed a number of technological products and services, namely Snapchat, Spectacles, and Bitmoji. The stock grew from $17 at the end of 2019 to near $67 now, compared to the S&P 500 which has gained 20% since the end of 2019. The company has seen rising revenues and improving earnings over recent years.
During the Covid-19 crisis, Snap saw revenue rise by 46% in 2020 to $2.5 billion, while earnings per share improved to -$0.65 compared to -$0.75 in the previous year. Revenue and earnings were driven by continuous increase in Daily Active users.
We expect Snap’s revenues to rise by 47% to $3.7 billion in 2021, increasing its revenue per share to $2.53 which coupled with the P/S multiple of 25.2x will lead to Snap’s valuation of around $64, which is close to its current market price.
[Updated 11/16/2020] Should You Invest In Snap Stock After Recent Gains?
After a 280% rally from 23rd March, we believe there may be better places for your money than Snap’s stock at the present time based on its valuation. Snap’s stock has rallied from $11 to $40 off the recent bottom compared to the S&P which moved 60%. The stock has outperformed the market and was at a 52 week high in early November after Q3 results. For Q3 2020 Snap beat consensus for revenue and earnings as the company benefited from a continuous rise in the daily audience. In Q3 Daily Active Users increased 18% y-o-y to 249 million. The company has seen a steady revenue rise over recent years, but its P/S multiple has fallen. We believe the stock does not have much room to grow after the recent rally as it has reached its all time high.
The 176% rise in SNAP stock price between 2017 to 2019 is justified by significant growth in revenue during those two years. Snap’s Revenue increased 108% from $0.8 billion in 2017 to $1.7 billion in2019. This effect was amplified by margins improving from -418% to -60% during this period. Revenue per share went up from $0.71 to $1.25. Higher revenue and margins were driven by overall industry growth and innovative solutions.
During the same period, the P/S multiple fell from 21x in 2017 to 13x in 2019. This was because the rise in stock price was lower than the growth in earnings. The P/S jumped in 2020 following the outbreak of coronavirus pandemic as more and more people started using Snap for watching shows and Discover content. Currently the multiple stands at 32x.
Effect of Coronavirus
The global spread of coronavirus has led to lockdown in various cities across the globe, which has affected industrial and economic activity. Despite the stay-at-home orders, reduced discretionary spending, which has adversely affected consumption as consumers focus on essentials, Snap’s revenue saw a 52% increase in Q3 2020 to $678 million. Adjusted EBITDA improved to $56 million in Q3 2020, compared to $-42 million in the same period of the previous year.
The actual recovery and its timing hinge on the broader containment of the coronavirus spread. Our dashboard Trends In U.S. Covid-19 Cases provides an overview of how the pandemic has been spreading in the U.S. and contrasts with trends in Brazil and Russia. Following the Fed stimulus — which set a floor on fear — the market has been willing to “look through” the current weak period and take a longer-term view. With investors focusing their attention on FY 2022 results, the valuations become important in finding value. Though market sentiment can be fickle, and evidence of an uptick in new cases could spook investors once again.
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