Feb 28 2017 12:54 pm

SNAP - Snapchat short of the year or $20 billion bargain?

Facebook 3.0 or economic disaster with announcement? For Snapchat’s stock, both seems possible. Let’s take a look at the depths of Snap’s stock.

I am very interested in shares that have the potential to develop a strong momentum and which play a central role in our society. For me personally, Snapchat does not present the same social value as Facebook at the time of its IPO in 2012 and I see less expansion possibilities for Snapchat today than for Facebook at the time. For Facebook, I had already sensed the potential for video streaming, APIs and payments. At the same time, I find the history of Snapchat and the speed of its success exciting.

But of course, anything is possible in the markets and I am really curious how the market will treat the stock day by day.

If I had to try to predict the future, then I could imagine a scenario where Snapchat first runs into major problems due to the competition it sees from Instagram, just to come back strongly later on with its new product, Spectacles, which could become the first mass market Augmented Reality content production fun kit. A few volatile months later we could see an acquisition by Facebook. But that’s all pure speculation.

Spectacles 1
Spectacles glasses with first-person perspective recording functionality
Spectacles 2
Spectacles, the stripped-down lifestyle / designer variant of what Google had once presented with Glass?

Personally, I will not be a buyer on the IPO, but I will also be careful with short sales, because of the euphoria we’ve seen pre-IPO. I’ll just follow the price action once the company trades and can imagine a smaller short position after a few weeks just as well as a medium-term long position after a brutal sell-off. I will certainly not make a purchase for life at the IPO. But as always: Make your own opinion and carry your own risk. This article is not a trade recommendation.

Snapchat (SNAP) stock analysis

Snapchat's first-mover advantage in the market for vertical videos and short-lived images combined with its addictive usability position Snapchat as a serious competitor to Facebook in social media.

Snapchat valuation and outlook

The fully diluted market capitalization of Snapchat is expected to be around $ 20-23 billion. That is a similar revenue multiple as Facebook and Twitter have had at their IPOs. At the same time, new user growth has been stagnating since Facebook more or less copied Snapchat’s core features in Instagram which makes a closer look at Snap (Snap is the company behind Snapchat and SNAP will also be the ticker symbol) interesting.

Opportunities of Snapchat’s stock

  • 158 million daily active users spending an average of 27.5 minutes per day with the app
  • 2.5 billion snaps per day in 20 languages
  • Rapid growth: $404 million sales in 2016, $936 million sales for 2017 and nearly $1.8 billion sales expected for 2018
  • Partnerships with the largest brands and publishers
  • Well positioned to acquire market share in the global advertising market which is estimated to comprise of $652 billion dollars
  • Youth trend: Feeling of seeing "the real life" on Snapchat, versus stylized or staged life on Facebook and Instagram
  • Spectacles glasses as growth opportunity
  • Possible takeover by Facebook

Silicon Valley's investor GoodWaterCapital even assumes a rise in sales to 14.8 billion dollars by 2017:

Snap Umsatz Forecast
Goodwater Capital

Risks of an investment in Snapchat

  • Quarterly growth of the number of daily active users only 3.3% in Q4 2016 (lower than Facebook and Twitter on their IPOs)!)
  • 2.7 billion dollars collected by well-known investors, but with cashburn of 678 million dollars 2016 now only cash reserves of 987 million
  • Exchanges are necessary because Snapchat is contractually committed to Google Cloud, Amazon Web Service, and a few other cloud service providers to spend over $3 billion on data services over the next five years
  • New shares at the stock exchanges have no voting rights
  • Facebook is still the market leader, even among users under 30 years
  • Facebook has been growing steadily because it has become popular beyond students. At Snapchat, the extreme focus on under 30 year-old could inhibit growth.

How does Snapchat work?

If you have no idea what Snapchat is, watch Tito's intro to Snapchat:


Random Fun Facts:

There is another company, called Snap Interactive, which has stock ticker STVI and is currently being bought by some confused investors.

In Los Angeles, real estate brokers are already preparing for Snap’s millionaire workers looking to buy their dream houses.

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Current SNAP share price


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