Snapchat stock IPO’d back in 2017 at a price of $17 per share and is up about 177% since the IPO. The company’s primary product is a mobile camera application under the same name. We take a look and see should I Buy Snapchat Stock?

Should I Buy Snapchat Stock About?

Snapchat is a camera application that was created to help people communicate through short videos and images. From the IPO prospectus, on average, 158 million people use Snapchat daily, and over 2.5 billion Snaps are created every day.

Snapchat primarily generates revenue through advertising on the platform. The group also have a number of other ventures such as Spectacles, which the group is hoping will help them expand into the metaverse.

Should I Buy Snapchat Stock Price

The Snapchat share price is up ~92% over the past twelve months to trade at a price at the time of writing of $75.11 and a market cap of over $118billion.

Over the past five years, the stock is up ~177% from the IPO price of $17 per share. This gives an approximate CAGR of around 40% which is similar to the NASDAQ 100 ETF NDQ. NDQ is also up around 198% over the past 5 years.

Interestingly over the 3-days, the article was written over, shares dropped over 26%

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Snapchat Stock IPO

When did Snapchat IPO? Snapchat IPO’d on the 2nd March 2017 on the New York Stock Exchange under the ticker code SNAP.

What was the SNAP IPO Price? Snapchat IPO’d at a price of $17.0, with a market capitalisation of around $24billion. The company generated a loss of around $500million when IPOing.

SNAP Stock Analysis

As Snapchat is a social media platform, it would be suitable to compare the company against other platforms such as Facebook, Twitter and Pinterest.

*1 Denotes 2Q21 Result

SnapchatTwitter*FacebookPinterest*
Market Cap118b52.1b915b39.55b
Revenue1.067b1.190b29b613m
Net Income-72m30.52m10.3b69m
mDAU306m206m1.9billion~14.6m
Snap Stock Analysis – Social Media Peer Comparison 2021

Snapchat seems to have a disproportionate market cap compared to Twitter and Pinterest. However, this may be as investors are anticipating a higher rate of growth as compared to other social media companies. Interestingly Facebook seems to have a favourable market cap in comparison to the 3 other social media companies.

SNAP Stock Analysis – Daily User Comparison

A slide from Snapchats 3Q21 slide deck seems to demonstrate just how dominant Facebook is in generating revenue per user. Facebook is able to generate around $256 per Daily Active User, this is nearly 5 times higher than the next largest competitor Twitter.

Should I Buy Snapchat Stock - Snapchat Peer Comparison
Snapchat Peer Comparison

Snapchat Stock Fundamentals

Snapchat currently trades on some hefty multiples with a price to book of over 40x and a price to sales of over 35x.

The group have a rather large debt to equity ratio of 87%, which is significant in our opinion. Snap has a book value or NTA of $1.5, which is also relatively low. As the group does not currently make positive earnings the PE ratio is unable to be calculated.

Market Cap$118billion
Share Price$75.11
Shares Outstanding1.5B
PEN/A
Book Value1.5
Price/Sales35.11x
Price/Book40.84x
Dividend Yield0% (N/A)
EPS 1Y211.11%
Debt2.55B
Equity2.908b
Debt/Equity87%
NTA1.5
Snapchat Stock Fundamentals

Should I Buy Snapchat Stock Financials

Snapchat released their 3Q2021 aftermarket on the 21st of October, investors didn’t seem to be very pleased by the result with the stock down around 21% after hours.

Investors from the webcast seemed to assume that the company would be growing revenue at around 60%+, however, Snapchat couldn’t really provide much information when the group would be able to return to around the 50% revenue growth rate.

Snap has typically been able to grow revenue per quarter, with a couple of exceptions. The 2nd quarter revenue typically seems to be sluggish when compared with the first and last quarters. Snap has a GP margin of around 50% as per the 1H21 report. This is decent for a software company, however, there are better gross margins around.

Snapchat Stock 3Q21 Income Statement

Snapchat for the quarter reported revenues of $1.067billion, which was up significantly from the prior comparable period however the growth rate from the 2Q21 seems to have slowed from $982m in the prior quarter (~10%).

Should I Buy Snapchat Stock - Income Statement
Should I Buy Snapchat Stock - Income Statement

Snapchat Stock 3Q21 Balance Sheet and Cash Flows

Snapchat Stock. Balance Sheet

As of September 30 2021, Snapchat has over a 1.9billion of cash and cash equivalents. This is up significantly from the prior comparable quarter when the group had 542million.

Total liabilities and stockholders equity are up from ~$5billion in the prior comparable quarter to now being over ~$7.1billion.

Snapchat Balance Sheet 3Q21
Snapchat Balance Sheet 3Q21
Snapchat Stock. Cash Flows

One of the positives from the 3Q21 investor slide deck was the improving cash flow position. The company in the year has reported two-quarters of positive free cash flow.

Investors seem to be overlooking the somewhat strong cash conversion from Snapchat. If the group can continue to generate strong levels of cash conversion this would be positive for the group.

Should I Buy Snapchat Stock - Insiders and Ownership

Snap Stock Ownership Breakdown

Shares in Snapchat are primarily owned by institutions at around 53% this is followed by strong insider ownership at 24%. The general public own 23% of the company.

The insider ownership of the company is significant for such a large-cap company. At the current valuation of $118billion, this mean's individual insiders own around $27billion in stock. Potentially this is the reason for a large portion of insider sales over the past 12 months.

Snap Stock Recent Insider Transactions

Individual Insiders in Snap have been selling down stock over the past twelve months with over US$83million of stock being sold at an average price of $62 per share. This is interesting given that the current share price is around $75 per share. Potentially the insiders are starting to believe the stock is overvalued. However, this should be taken with a grain of salt as Insiders hold over $25billion in stock.

DateValueNameEntitySharesMax Price
18 Oct 21-$660,613Derek AndersenI8,874US$74.82
18 Oct 21-$2,715,555Jeremi GormanI36,472US$74.77
18 Oct 21-$1,123,934Jerry HunterI15,099US$75.49
18 Oct 21-$656,353Rebecca MorrowI8,817US$74.77
16 Sep 21-$2,446,080Derek AndersenI33,867US$72.65
16 Sep 21-$2,584,974Jeremi GormanI35,787US$72.67
16 Aug 21-$2,619,955Jeremi GormanI37,065US$72.01
16 Aug 21-$3,545,763Jerry HunterI50,163US$71.37
16 Aug 21-$6,027,335Michael O'SullivanI85,253US$71.94
SNAP Stock Recent Insider Transactions
SNAP Stock - Top 5 Shareholders

Robert Murphy and Evan Spiegel are the two largest holders in SNAP stock with a combined value of around $27billion between the pair. Robert Murphy was a Co-Founder and the current CTO of Snap whilst Evan is the current CEO.

OwnershipNameSharesCurrent Value
12.4%Robert Murphy197,307,664$14.8b
10.71%Evan Spiegel170,334,855 $12.8b
8.88%T. Rowe Price Group, Inc.141,249,369$10.6b
3.8%The Vanguard Group, Inc.60,392,107$4.5b
3.47%Edgewood Management LLC55,234,421$4.1b
3.23%Morgan Stanley 51,451,570$3.9b
2.95%BlackRock, Inc.46,964,718$3.5b
Snap Stock - Top 5 Shareholders

Interestingly enough there is not really much significant insider ownership outside of Robert or Evan. It would have been good to see a number of other high-level executives on the roster. However, both Evan and Rob have significant skin in the game.

Should I Buy Snapchat Stock - Prophets Take

One of our largest philosophies at Prophet Invest is to buy what you know and what you use. Interestingly enough Snapchat is one of the only social media platform's which we do not use on a regular basis.

The group has been growing revenues at between 40%-60% for the past couple of quarters, however, 3Q21 top-line revenue growth number is significantly softer at only around 12%.

The group sure has significant expectations placed upon it by Wall St. However, if the group fails to continue delivering growth we could see a large contraction in the multiples on which the group trades. Large multiples require companies to continually beat quarterly expectations!

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Snapchat seems to be blaming a lot of the current slowdown on the changes in Apple's advertising policies, however, we believe this may be more of a structural shift coming out of worldwide lockdowns. As the growth seemed to accelerate during the lockdowns, we may now start to see reduced levels coming out of lockdowns.

If the group can continue to generate strong levels of free cash flow, Prophet may revisit the company. Currently, we are underwhelmed by the offering and don't see as much value being created by Snapchat when compared to either Snapchat or Facebook. Interestingly Facebook may seem to be a better bet at the current market cap of 915billion vs Snapchats $118billion.

We will be watching from the sidelines in regards to SNAP stock! Instead, we have been much keener on Digital Ocean or Coinbase Stock.

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