Is Snap Stock Fairly Priced?

Snap’s stock (NYSE: SNAP) has gained approximately 8% YTD as compared to the 3% rise in the S&P500 index over the same period. Further, the stock lost almost 80% of its value in 2022 vs a 19% drop in the S&P500. That said, at its current price of $10, it is trading 18% below the fair value of $12 – Trefis’ estimate for Snap’s valuation. 

The company posted mixed results in the third quarter of 2022, with earnings beating the consensus but revenues missing the mark. It reported total revenues of $1.13 billion – up 6% y-o-y. The growth rate slowed down in 2022 due to tough macroeconomic conditions and intense competition in the space. However, daily active users (DAUs) have continued to improve – increasing by 19% y-o-y to 363 million. On the cost front, total costs & expenses increased 25% y-o-y. Further, the other income decreased in the quarter, resulting in a net loss of $359.5 million up from $71.9 million in the year-ago period. 

The top line grew 17% y-o-y to $3.3 billion in the first nine months of 2022. However, the cost & expenses increased 26% y-o-y over the same period, leading to an operating loss of $1.1 billion. Further, the other income decreased from $177 million to -$22.5 million. Overall, the net loss increased from $510 million to $1.14 billion. 

The consensus estimates for Q4 revenues and earnings are $1.3 billion and $0.11 respectively. Overall, we forecast Snap’s revenues to touch $4.6 billion in FY2022. Additionally, SNAP’s revenue per share (RPS) is likely to improve to $2.83, which coupled with a P/S multiple of just above 4x will lead to a valuation of $12.