Snap Inc.

SNAP Details

Snap Inc. (NYSE: SNAP) is a camera company whose main product is Snapchat, a camera software that allows users to engage with each other through short movies and photos known as Snaps. Snapchat has five sections (Camera, Communication, Snap Map, Stories, and Spotlight) and extra functions that work outside the app. It earns the majority of its money by selling advertising products, including Snap Ads and AR Ads. This is referred to as advertising revenue. As of January 05, 2022, the company's market capitalization stood at USD 70.88 billion.

Q3FY21 Results:

• Rise in Revenues: Due to a mix of growth in advertisers, auction-based advertising demand, and optimization efficiencies, the company achieved revenue growth of 57.29% to USD 1.07 billion in Q3FY21 (ended September 30, 2021) compared to USD 678.67 million in Q3FY20.
• Decline in Losses: SNAP's net losses decreased to USD 71.96 million in Q3FY21, compared to USD 199.85 million in Q3FY20.
• Healthy Balance Sheet: The company had USD 3.48 billion in cash and cash equivalents (including short-term investments) as of September 30, 2021, and USD 2.25 billion in total debt.
• Growth in ARPU: In Q3FY21, SNAP reported an average revenue per user (ARPU) of USD 3.49, up from USD 2.73 in Q3FY20.

Key Risks:

• Technological Risk: The ability of SNAP's technology infrastructure to be maintained and scaled is critical to its success. Any significant interruption to its service might impair its reputation, lead to a loss of users and a drop in user engagement, and jeopardize its business operations.
• Voting Concentration Risk: As of September 30, 2021, the company's two co-founders, Evan Spiegel and Robert Murphy, controlled 99% of the voting power of its outstanding capital shares, and Mr. Spiegel alone could exercise voting control over a majority of that voting power. It limits other shareholders' capacity to influence corporate decisions.

Outlook:

• Q4FY21 Estimates: The company estimates Q4FY21 revenue to be between USD 1.165 and 1.205 billion as of October 21, 2021, with Adjusted EBITDA ranging between USD 135 and 175 million.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SNAP Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

SNAP's share price has fallen 43.48% in the past three months and is currently leaning towards the lower-band of the 52-week range of USD 42.46 to USD 83.34. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 30.76. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 51.55.

Considering the correction in the stock price in the past three months, positive cash flows, current valuation, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 41.33, down 6.13%, as of January 05, 2022.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.  

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