Why SNAP Stock needs to snap back to reality

Today we are looking at Snap Inc. (NYSE: SNAP), to determine if you should buy SNAP stock. We will look at SNAP financial ratios, analyst ratings, and current valuation to determine a SNAP forecast and price. What Does SNAP Do? Snap Inc. operates as a camera company in North America, Europe, and internationally. The company offers Snapchat, a camera application with various functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight that enable people to communicate visually through short videos and images. It also provides Spectacles, an eyewear product that connects with Snapchat and captures photos and video from a human perspective; and advertising products, including AR ads and Snap ads. SNAP Stock Analysis and Forecast Snap Inc. Competition and Comparables In order to undergo a comparable analysis (to determine SNAP stocks value), we need to first outline who SNAP's competitors are. These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to SNAP, and have a market cap similar to SNAP (if possible). By keeping this in mind, I found the following list of companies to be some of SNAP stocks closest competitors: FB, AMOV, RELX, RBLX, BCE, DASH, SPOT, TWLO, CHT, TU SNAP Stock News and Information Recent news Snap shares plunged 40% on Tuesday, putting the company on pace for its worst day ever and dragging down other social media and digital ad company stocks. The tumble comes after Snap issued a warning on Monday to investors saying it won’t meet its own targets for revenue and adjusted earnings in the current quarter. To read further into this here is a link to an article. Analysis of Snap Inc. Stock Performance and Financial Ratios Yearly: SNAP Revenues: In FY 2021, SNAP experienced a yearly increase in revenues of $1.61B (or 64.25%) resulting in a total revenue figure of $4.12B. SNAP Cost of Revenues: In FY 2021, SNAP experienced a yearly increase in their cost of revenues of $567.74M (48.01%), resulting in a total revenue figure of $1.75B. Since the increase (of 48.01%), in SNAP's cost of revenue was lesser (by -16.23%) than the increase (of 64.25%) in SNAP's revenues, we should expect that SNAP experienced an increase (roughly 16.23%) in their FY gross profits. SNAP Gross Profit: In FY 2021, SNAP experienced a yearly increase in their gross profit of $1.04B (or 78.75%) resulting in a total gross profit of $2.37B. This increase is somewhat consistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY. SNAP EBITDA: In FY 2021, SNAP experienced a yearly decrease in their EBITDA of -54.52% resulting in a total EBITDA of $-337.55M.  SNAP Net Income: In FY 2021, SNAP experienced a yearly decrease in their net income of -48.36% resulting in a total net income of $-487.95M. SNAP EPS: SNAP's EPS increased YOY from $-0.65 in FY 2020 to $-0.31 in FY 2021 Overall, this report was not ideal, and showed SNAP's struggle to turn their revenues into income. Quarterly: SNAP Revenues: In Q1 2022, SNAP experienced a quarterly decrease in revenues of $-235.16M (or -18.12%) resulting in a total revenue figure of $1.06B. SNAP Cost of Revenues: In Q1 2022, SNAP experienced a quarterly decrease in their cost of revenues of $-28.25M (-6.29%), resulting in a total revenue figure of $420.9M. Since the decrease (of -6.29%), in SNAP's cost of revenue was greater (by 11.83%) than the decrease (of -18.12%) in SNAP's revenues, we should expect that SNAP experienced an decrease (roughly -11.83%) in their Q1 gross profits. SNAP Gross Profit: In Q1 2022, SNAP experienced a quarterly decrease in their gross profit of $-206.9M (or -24.38%) resulting in a total gross profit of $641.83M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 and Q4. SNAP EBITDA: In Q1 2022, SNAP experienced a quarterly decrease in their EBITDA of $-382.33M (or -513.24%) resulting in a total EBITDA of $-307.84M. This decrease (of -513.24%) stems from the fact that SNAP experienced a decrease in their gross profits of -24.38% (as we saw in the previous bullet point). SNAP Net Income: In Q1 2022, SNAP experienced a quarterly decrease in their net income of $-382.17M (or -1,695%) resulting in a total net income of $-359.62M. SNAP EPS: As a result of SNAP's decrease in net income of $-382.17M, SNAP's EPS also decreased (by $-0.23) from $0.01 in Q4 2021 to $-0.22 in Q1 2022 Overall, it seems as though SNAP had a poor financial performance (due to EPS $-0.23) as many of their financial metrics shrunk, most notably their EPS (by $-0.23), as well as their net income (by $-382.17M), and other metrics (as you can tell from the above bullet points). Additionally, SNAP stock missed their EPS estimate by $-0.03 (or -300%), as they reported an EPS of $-0.02 for the quarter (compared to their estimated EPS of $0.01). Is SNAP Share Dilution an Issue? As part of their Q1 2022 earnings release, SNAP stated that they currently have 1.62B Shares Outstanding (weighted average), which is up 14.34M shares (from 1.6B shares outstanding in Q4 2021). This is essentially negliagable, but something investors should keep in the back of their minds. Furthermore, SNAP stock has up to 64.1M of shares that they can issue (thereby diluting SNAP's stock). This maximum dilution for the period would only have a dilutionary effect on SNAP of less than 1%, which is also essentially negligable. Latest SNAP Stock Analyst Ratings Here is the current analyst rating distribution for SNAP. In total there are 34 SNAP stock analyst ratings. 31 Buys 3 Holds 0 Sells Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if SNAP stock is a buy or sell Analysts seem to be in consensus on the fact that the SNAP stock is currently undervalued and is due for a bounce. SNAP Stock Rating and Forecast Currently, we have 3 financial ratings that help investors get a general idea of a company's valuation. These 3 metrics include DCF, ROE, and P/E, which are very common in the investing/valuation climate. Firstly, SNAP stock has a DCF rating of 5 - Very Strong. DCF ratings determine the value behind a company based on their financial projections, expectations, and discount rate (time value of money). This is one of the most used valuation models in the stock market, and thus a high level of importance should be associated with this rating. Secondly, SNAP stock has an ROE rating of 2 - Weak. SNAP's current ROE is -24.02%, which justifies their rank of 2 - Weak. ROE shows us how good (or bad) a company is at using their shareholders funds to generate money (returns). ROE is most useful when compared against the industry average, which is currently 18.61%. This is horrendous as it shows that SNAP is losing the money that investors have placed in the company. Lastly, SNAP stock has a P/E rating of 1 - Very Weak SNAP stock price to earnings ratio is currently -88.71 which justifies their rank of 1 - Very Weak. Price to Earnings is the most commonly found financial metric and is best used when comparing a company's p/e to the industry average. SNAP operates in the Internet Content & Information industry, which currently has an average P/E of -12.79. Overall, based on the 3 previously mentioned fields, SNAP stock has been given a comprehensive rating of 4 - Strong. This rating implies that they are healthy financially. This rating is high as I believe it should be a 3 or less, which would imply that SNAP is not healthy financially and potentially should be avoided as an investment. SNAP Stock Price Prediction and Valuation SNAP Price Forecast Using Comparable Analysis Price to Book (P/B): SNAP's current P/B ratio is 16.08, compared to the average P/B ratio of SNAP's peers being 4.9. This implies that SNAP is overvalued and their share price should change by a factor of -69.52% to be at fair value (based on SNAP's P/B compared to the P/B of their peers). Price to Equity (P/E): SNAP stock P/E ratio is currently -88.71, compared to the average P/E ratio of SNAP's peers being -12.79. This implies that SNAP is overvalued and their share price should change by a factor of -85.59% to be at fair value (based on SNAP's P/E compared to the P/E of their peers). Overall, SNAP stock is overvalued and needs to experience a change in stock price of (an average of) -77.55% to be considered “at fair value”. This is in agreeance with the other methods we have seen today and imply that SNAP is due for a further decrease in share price. Is SNAP Stock a Buy or Sell? Overall, due to the overall stock rating of 4 - Strong (which should be 3 or less) (Based off of DCF, ROE, and P/E), as well as the fact that a comparable analysis (P/E and P/B) found that SNAP was overvalued and need to experience a price change of -77.55% in order to be at their fair value, I have concluded the following: Stay away from SNAP for the time being, and if you are thinking of taking a position, maybe consider taking a bearish position.

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Why SNAP Stock needs to snap back to reality

May 24, 2022

bearish

general Analysis

[7 min Read]

Today we are looking at Snap Inc. (NYSE: SNAP), to determine if you should buy SNAP stock. We will look at SNAP financial ratios, analyst ratings, and current valuation to determine a SNAP forecast and price.

What Does SNAP Do?

Snap Inc. operates as a camera company in North America, Europe, and internationally. The company offers Snapchat, a camera application with various functionalities, such as Camera, Communication, Snap Map, Stories, and Spotlight that enable people to communicate visually through short videos and images. It also provides Spectacles, an eyewear product that connects with Snapchat and captures photos and video from a human perspective; and advertising products, including AR ads and Snap ads.


SNAP Stock Analysis and Forecast

Snap Inc. Competition and Comparables

In order to undergo a comparable analysis (to determine SNAP stocks value), we need to first outline who SNAP's competitors are.

These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to SNAP, and have a market cap similar to SNAP (if possible).

By keeping this in mind, I found the following list of companies to be some of SNAP stocks closest competitors:

FB, AMOV, RELX, RBLX, BCE, DASH, SPOT, TWLO, CHT, TU


SNAP Stock News and Information

Recent news

Snap shares plunged 40% on Tuesday, putting the company on pace for its worst day ever and dragging down other social media and digital ad company stocks.

The tumble comes after Snap issued a warning on Monday to investors saying it won't meet its own targets for revenue and adjusted earnings in the current quarter.

To read further into this here is a link to an article.

Analysis of Snap Inc. Stock Performance and Financial Ratios

Yearly:

  • SNAP Revenues: In FY 2021, SNAP experienced a yearly increase in revenues of $1.61B (or 64.25%) resulting in a total revenue figure of $4.12B.
  • SNAP Cost of Revenues: In FY 2021, SNAP experienced a yearly increase in their cost of revenues of $567.74M (48.01%), resulting in a total revenue figure of $1.75B. Since the increase (of 48.01%), in SNAP's cost of revenue was lesser (by -16.23%) than the increase (of 64.25%) in SNAP's revenues, we should expect that SNAP experienced an increase (roughly 16.23%) in their FY gross profits.
  • SNAP Gross Profit: In FY 2021, SNAP experienced a yearly increase in their gross profit of $1.04B (or 78.75%) resulting in a total gross profit of $2.37B. This increase is somewhat consistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY.
  • SNAP EBITDA: In FY 2021, SNAP experienced a yearly decrease in their EBITDA of -54.52% resulting in a total EBITDA of $-337.55M.
  • SNAP Net Income: In FY 2021, SNAP experienced a yearly decrease in their net income of -48.36% resulting in a total net income of $-487.95M.
  • SNAP EPS: SNAP's EPS increased YOY from $-0.65 in FY 2020 to $-0.31 in FY 2021

Overall, this report was not ideal, and showed SNAP's struggle to turn their revenues into income.

Quarterly:

  • SNAP Revenues: In Q1 2022, SNAP experienced a quarterly decrease in revenues of $-235.16M (or -18.12%) resulting in a total revenue figure of $1.06B.
  • SNAP Cost of Revenues: In Q1 2022, SNAP experienced a quarterly decrease in their cost of revenues of $-28.25M (-6.29%), resulting in a total revenue figure of $420.9M. Since the decrease (of -6.29%), in SNAP's cost of revenue was greater (by 11.83%) than the decrease (of -18.12%) in SNAP's revenues, we should expect that SNAP experienced an decrease (roughly -11.83%) in their Q1 gross profits.
  • SNAP Gross Profit: In Q1 2022, SNAP experienced a quarterly decrease in their gross profit of $-206.9M (or -24.38%) resulting in a total gross profit of $641.83M. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 and Q4.
  • SNAP EBITDA: In Q1 2022, SNAP experienced a quarterly decrease in their EBITDA of $-382.33M (or -513.24%) resulting in a total EBITDA of $-307.84M. This decrease (of -513.24%) stems from the fact that SNAP experienced a decrease in their gross profits of -24.38% (as we saw in the previous bullet point).
  • SNAP Net Income: In Q1 2022, SNAP experienced a quarterly decrease in their net income of $-382.17M (or -1,695%) resulting in a total net income of $-359.62M.
  • SNAP EPS: As a result of SNAP's decrease in net income of $-382.17M, SNAP's EPS also decreased (by $-0.23) from $0.01 in Q4 2021 to $-0.22 in Q1 2022

Overall, it seems as though SNAP had a poor financial performance (due to EPS $-0.23) as many of their financial metrics shrunk, most notably their EPS (by $-0.23), as well as their net income (by $-382.17M), and other metrics (as you can tell from the above bullet points).

Additionally, SNAP stock missed their EPS estimate by $-0.03 (or -300%), as they reported an EPS of $-0.02 for the quarter (compared to their estimated EPS of $0.01).

Is SNAP Share Dilution an Issue?

As part of their Q1 2022 earnings release, SNAP stated that they currently have 1.62B Shares Outstanding (weighted average), which is up 14.34M shares (from 1.6B shares outstanding in Q4 2021). This is essentially negliagable, but something investors should keep in the back of their minds.

Furthermore, SNAP stock has up to 64.1M of shares that they can issue (thereby diluting SNAP's stock). This maximum dilution for the period would only have a dilutionary effect on SNAP of less than 1%, which is also essentially negligable.

Latest SNAP Stock Analyst Ratings

Here is the current analyst rating distribution for SNAP. In total there are 34 SNAP stock analyst ratings.

  • 31 Buys
  • 3 Holds
  • 0 Sells

Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if SNAP stock is a buy or sell

Analysts seem to be in consensus on the fact that the SNAP stock is currently undervalued and is due for a bounce.

SNAP Stock Rating and Forecast

Currently, we have 3 financial ratings that help investors get a general idea of a company's valuation. These 3 metrics include DCF, ROE, and P/E, which are very common in the investing/valuation climate.

Firstly, SNAP stock has a DCF rating of 5 - Very Strong. DCF ratings determine the value behind a company based on their financial projections, expectations, and discount rate (time value of money). This is one of the most used valuation models in the stock market, and thus a high level of importance should be associated with this rating.

Secondly, SNAP stock has an ROE rating of 2 - Weak. SNAP's current ROE is -24.02%, which justifies their rank of 2 - Weak. ROE shows us how good (or bad) a company is at using their shareholders funds to generate money (returns). ROE is most useful when compared against the industry average, which is currently 18.61%. This is horrendous as it shows that SNAP is losing the money that investors have placed in the company.

Lastly, SNAP stock has a P/E rating of 1 - Very Weak SNAP stock price to earnings ratio is currently -88.71 which justifies their rank of 1 - Very Weak. Price to Earnings is the most commonly found financial metric and is best used when comparing a company's p/e to the industry average. SNAP operates in the Internet Content & Information industry, which currently has an average P/E of -12.79.

Overall, based on the 3 previously mentioned fields, SNAP stock has been given a comprehensive rating of 4 - Strong. This rating implies that they are healthy financially. This rating is high as I believe it should be a 3 or less, which would imply that SNAP is not healthy financially and potentially should be avoided as an investment.

SNAP Stock Price Prediction and Valuation

SNAP Price Forecast Using Comparable Analysis

  1. Price to Book (P/B): SNAP's current P/B ratio is 16.08, compared to the average P/B ratio of SNAP's peers being 4.9. This implies that SNAP is overvalued and their share price should change by a factor of -69.52% to be at fair value (based on SNAP's P/B compared to the P/B of their peers).
  2. Price to Equity (P/E): SNAP stock P/E ratio is currently -88.71, compared to the average P/E ratio of SNAP's peers being -12.79. This implies that SNAP is overvalued and their share price should change by a factor of -85.59% to be at fair value (based on SNAP's P/E compared to the P/E of their peers).

Overall, SNAP stock is overvalued and needs to experience a change in stock price of (an average of) -77.55% to be considered “at fair value”. This is in agreeance with the other methods we have seen today and imply that SNAP is due for a further decrease in share price.

Is SNAP Stock a Buy or Sell?

Overall, due to the overall stock rating of 4 - Strong (which should be 3 or less) (Based off of DCF, ROE, and P/E), as well as the fact that a comparable analysis (P/E and P/B) found that SNAP was overvalued and need to experience a price change of -77.55% in order to be at their fair value, I have concluded the following:

Stay away from SNAP for the time being, and if you are thinking of taking a position, maybe consider taking a bearish position.

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SNAP

Snap Inc.

13.13

-0.04
-0.30%

Return

-0.15%
Change % Since Posting
-0.02
Change Since Posting
13.11
Price When Posted

Metrics

9.83
Target Price
8/ 10
Confidence
< 1 Week
Timeframe
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