![]() ![]() SNAP's share price has fallen by -34% from $75.11 as of Octoto $49.26 as of Novemin the past one month. Given that it is difficult to determine when Snap Inc.'s revenue growth momentum can recover, it is tough to have a positive view of the company's shares at the moment, which makes a Neutral rating fair. Snap Inc.'s Enterprise Value-to-Revenue multiple has come down to close to its three-year historical average, but the stock's revenue growth expectations are also more modest now. With the market having less confidence in Snap Inc.'s ability to generate strong revenue growth in line with the goals it set at its February 2021 Investor Day, SNAP's valuations have de-rated significantly in line with a substantial share price correction in the last one month. In the current article, I review Snap Inc.'s third quarter earnings and assess its future financial outlook, and determine if the stock is attractive as a potential investment candidate now.Īpple's ( AAPL) iOS privacy changes have led to SNAP's Q3 2021 actual revenue and its Q4 2021 revenue guidance coming in below market expectations. My prior update for SNAP was published on Augafter the company reported its Q2 2021 results. ![]() ( NYSE: SNAP) following the company's Q3 earnings drop and subsequent stock price correction. I maintain my Neutral rating for Snap Inc. Justin Sullivan/Getty Images News Elevator Pitch Mark Hake writes about personal finance on and runs the Total Yield Value Guide which you can review here. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines. ![]() Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. Despite SNAP’s present troubles, expect SNAP stock to be 39% higher within two years from higher free cash flow. That is an excellent return on investment (ROI) for most investors. Even if it takes two years, the average compounded return will still be 17.9% for each of the next two years. Let’s assume that it takes over one year for this price target to hit. So this also implies that even with the lower Q4 estimates, the long-term target price for SNAP stock is $66.68 per share. This means that the $106.7 billion target market value is 39% higher than its $76.6 billion market cap today. But if we determine its future value by using the FCF yield metric - this is a rate that we can use to estimate how valuable its FCF is to the market.įor example, if we divide $1.6 billion in FCF by an FCF yield of 1.5%, the target market cap will be $106.7 billion (i.e, $1.5b/0.15=$106.7b). Right now, SNAP has a market capitalization of $76.64 billion. If revenue doubles to $8 billion by 2023, even with lower iOS ad sales, it is likely that FCF will be much higher as well.įor example, using a 20% FCF margin, we can estimate that FCF will hit $1.6 billion by 2023. These are the same analysts that were upset that that Q3 revenue came in below their forecasts.Īssuming that the company will produce free cash flow at a high margin in two years will allow us to to forecast the stock price. Analysts are still projecting revenue to hit $8 billion in 2023, up from $4.02 billion this year, according to Seeking Alpha. That does not seem too high for a company that will be growing revenue by over 100% by then. That puts SNAP stock on a forward price-to-earnings (P/E) valuation metric of just 35 times. As it stands now, SNAP stock’s valuation is starting to look interesting.įor example, these same analysts now project that earnings in two years will hit $1.35 per share at the end of 2023. Moreover, according to the Seeking Alpha, the Q4 guidance was well below (-13%) analysts’ expectations.īut this just explains why SNAP stock has fallen. For example, according to one analyst at Seeking Alpha, the company’s Q3 revenue was 3% below analyst expectations. Moreover, SNAP still projected that its Q4 revenue would be higher than Q3 revenue, albeit lower than analysts’ prior projections. More importantly, FCF became positive at $52 million in Q3 2021, compared to $70 million in the prior year. Analysts overlooked this in the Q3 earnings release.įor example, operating cash flow was $72 million in Q3 2021, compared to a loss of $55 million in Q3 2020. One reason is that SNAP is now making operating and free cash flow (FCF) profits. ![]()
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