15 days after Snap IPO – to buy or not to buy?

SNAP TWTR FB
Symbol Name Last Trade Price Change Change (%)

Key Pointers:

  • $17 per share IPO price pegged   ( ) valuation at $24 Billion.
  • 600% revenue growth in 2016, from $58.6 M to $404.6 M
  • 46% growth in DAU(Daily Active Users) to 158 Million
  • 62 Million Daily Active Users in US, puts it on par with Twitter
  • Average time spent by active users is approx. 25-30mins per day
  • 4 Acquisitions so far –
    • Lookbery(lenses manufacturer) in 2015
    • Bitstrips (for Bitmoji feature) in 2016
    • A computer vision software comp
    • A Mobile search company
  • Average revenue per US customer during last Quarter of 2016 was $2.16
  • 5 year contract with Amazon AWS worth $1 Billion for Cloud Services
  • 5 year contract with Google cloud services ($400M/year)

Analysis:

Snapchat was launched in July 2011 with the principal concept that pictures and messages are only available for a short time before they become inaccessible. Snapchat has since evolved into a mix of private messaging, public content – including brand networks, publications, and live events such as sports and music – and products such as Spectacles. This interesting mix of products keeps its subscribers engaged. High user engagement level is key to it’s revenue, which is almost entirely from advertising.

Snap’s biggest clients include marquee corporations such as Universal, Turner and CNN. They deliver high quality media and advertising content which has better engagement that traditional advertising platforms. Snap is also coming under significant pressure from Facebook owned Instagram, which just introduced a new feature called “Stories” and Facebook owned Whatsapp, which just introduced a feature called Status (self destructing photos).

Snap’s financial performance in comparison to it’s peers, is not great.

Annual Revenue Per Subscriber Cost of Revenue per DAU Daily Active Users
Snap $2.71 ($2.92) 158
Twitter $7.90 ($2.80) 330
Facebook $15.98 ($2.01)        1,890

And yet, it’s current revenue multiple is huge!

Q4 Revenue
(Billion)
Market Cap
(Billion)*
Revenue Multiple
Snap $0.17 $22.79 33.5
Twitter $0.72 $10.88 3.8
Facebook $8.81 $403.70 11.5

* as measured on 20th March, 2017.

Snap’s SEC filling mentions that “Research and development expenses in the third quarter of 2016 (ahead of IPO) were higher than the previous quarters presented due to stock-based compensation expense from the modification of the terms of RSUs granted to one employee. ”

Opinion:

The world wide advertising spend is expected to grow from $652 billion to $767 billion by 2020 and mobile advertising in particular is expected to grow from $66 billion to $ 196 billion. Snap is ideally placed to benefit from this tailwind. Snap’s long term contracts with Google and Amazon for receiving infrastructure services should help in bringing its cost at par with Twitter, at $2.80 per DAU.

However, Snap’s stock price at $19.54 (two weeks after IPO) is still very expensive at a revenue multiple of 33 and will come under further pressure from Employee owned stock coming for liquidity in the next few months.

We believe that one should steer clear of investing in Snap because of the high valuation and given the rising pressure from competition. It might make for a good buy towards the end of 2017, at revenue multiples below 20, IF the revenue growth story continues at the current pace and Snap is able to maintain and grow it’s market share.

 

SNAP TWTR FB
Name
Change
Change (%)
Market Capitalization
52 week Low
52 Week High
Earnings per Share
Dividend per Share
EBITDA
P/E Ratio
PEG Ratio
Price / Sales
Price / Book
Revenue

CONTACT US

We're not around right now. But you can send us an email and we'll get back to you, asap.

Sending

©2018 Angani Capital Advisors LLP. All rights reserved. Privacy Policy

Log in with your credentials

Forgot your details?