Dear Reader,
Here I am going to update my valuation of Snap Inc, the maker of the social network application Snapchat.
I believe Snap Inc. currently is grossly overvalued in the coronavirus disease COVID-19 pandemic lockdown. As of today Snap Inc is valued at 23.9 billion USD. I believe Snap is worth around 7 billion USD. My 7 billion USD estimation of Snap value makes for a price of 4.85 USD compared with the 16.55 USD Snap is currently trading at.
Why do I think Snap is worth 7 billion USD? Currently Snap is trading at a trailing Price/Sales ratio of 13. I do believe in the temporary environment that valuation metric is overpriced. Unless Snap really challenges Facebook in social networking domination, it is difficult to justify Snap's price tag. Snap does not earn net income, so one of the few metrics one can use to value unprofitable company like Snap is Price/Sales ratio.
One justification of Snap's current valuation is its revenue growth rate year on year of about 45% in the last four reported quarters. The problem is that Snap is unprofitable. Snap's net profit margin in the first quarter of 2020 was 66.15%. That is mainly why I think Snap is worth 7 billion USD. Snap has 1.75 billion USD in liabilities. If Snap continues to burn cash so quickly, it will soon need to raise fresh outside capital. Given the current economic backdrop going to the financial markets could prove difficult. Hence my low estimate of Snap's value compared to where the company is valued by public financial markets at present.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
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