During the first six month of 2019, Snap (Snapchat’s parent company) had its shares triple in value. But on July 26th, the shares reached their highest point of $18.36 and have been stagnant since. The current stock price for Snapchat is $17.50/share, around 8 and a half percent off the highest it’s been. Now that its place in the stock market has been cemented, is there a chance for Snap to change its fate? It’s possible that shares could go over $20/share due to the way digital is trending, there’s still the trouble of competition and valuation.
When you compare Snapchat to its contempories of Facebook and Twitter, Snap has its stocks at a better price but still has to meet or beat expectations in order to impress its investors. And then there’s new competitors such as Tik Tok, which have all but captured Gen Z. So, can Snapchat break the $20/share barrier, or will it be stuck in the dreck as so many others before?
Let’s break into it.
Snapchat’s Excellent Price
Now, if Snap stock wants to flourish in this bull market, it will depend on the ad market. Which is good, because this year is an election year, which means hundreds of millions of dollars spent on ads on anywhere they’ll be placed. Though most of this money is in Facebook and Alphabet’s hands, the runoff will still be more than enough for smaller social media companies. But there is more than that to explain Snapchat’s good stocks. Their EV/Sales (or enterprise value-to-sales) is a whopping 14.5. Compared to the bigger fish, Facebook has only an 8.5 EV/sales ratio, while Twitter sits at a measly 6.3 EV/sales ratio.
The difference in these ratios makes more sense once you see each company’s expected sales growth. Twitter’s expected growth is the smallest of the three, at 14.7%. Facebook is right in the middle, at 21.8% this year. Snapchat? Their growth for 2020 is a surprising 36%. Now, SNAP’s stocks already look pretty healthy. But if these projections are true, SNAP’s valuation will be an understatement! But this isn’t going to be easy for the company. Growth doesn’t last forever, and social media is a deadly battlefield.
The Risks for SNAP
Now, Snap may be improving their monetization, but their stock could face issues from a lack of user growth. Their growth for DAU (daily active users) was a respectable 13% globally year-over-year. But this was mostly thanks to an overseas market. In Europe, their DAU grew only 9%, which is still better than their North American (which includes Mexico and Central America), a measly 6%. The rest of the world made up for it with an incredible 28% YoY growth. But to make sure growth stays consistent, Snapchat needs to make sure the international market is in their favor and maximize their monetization.
Of course, SNAP isn’t letting this opportunity slide. They have a foreign monetization much higher than other social media sites like Pinterest. Their overseas ARPU (average revenue per user) in Q3 last year was only $0.13 per overseas user. Meanwhile, SNAP had $1.01 per overseas user. Now, this already seems like great optimization to me. But there are other, more knowing voices out there saying “we ain’t seen nothing yet.” One of them is JMP Securities’ Ronald Josey. This analyst believes that SNAP stock can give their rivals a run for their money, and possibly even surpass them. Not only that, but Josey says there might even be additional multiple expansion, even with the “premium” stock price.
Of course, Snapchat still has a ways to go. After all, TikTok use among American teens is catching up to Snapchat, and Facebook’s Instagram has shamelessly stolen key features from Snapchat. Also, Tam Taulli has written several articles in InvestorPlace that Snapchat has a lack of generational diversity. Almost everyone at least has a Facebook account, from grandmas to college freshmen. I don’t know many grandmas that have a Snapchat.
Should I Buy SNAP Stock?
So, here we are at the end, still asking: “Should you buy SNAP stocks?” On one hand, their stock has the chance of breaking past $20/share even without whatever monetization schemes they come up with. Their shares are trading at a high premium among social media peers, but most of the upside is already priced into the stock. And we can’t forget about their competitors. TikTok is shoring in on the youth market, taking precious eyes away from Snapchat. And Snapchat still can’t break into older generations the way Twitter and Facebook have.
But if you were to listen to the SNAP stock bulls, the Snapchat can’t do anything but go up this year, due to how much the increase in ad spending will benefit them. The more ad spending, the more Snapchat benefits. At least until after the economy slows, it’d be best not to underestimate them.
So, my call? I’m going to wait until the price dips a little more before buying in. With its current premium price, the upside is not quite worth the risk for me.
SNAP Stock Price Recommendations
Feb-05-20 Upgrade Atlantic Equities Underweight → Neutral $17
Jan-31-20 Resumed Citigroup Neutral $18 → $20
Jan-28-20 Reiterated Guggenheim Buy $22 → $23
Jan-17-20 Upgrade UBS Neutral → Buy $16 → $24
Jan-10-20 Initiated Bernstein Outperform
Jan-09-20 Upgrade Jefferies Hold → Buy $21
Jan-09-20 Upgrade Cowen Market Perform → Outperform $16 → $20
Dec-13-19 Upgrade JMP Securities Mkt Perform → Mkt Outperform $20
Nov-25-19 Upgrade Loop Capital Hold → Buy $20
Oct-23-19 Upgrade Needham Underperform → Hold
Oct-23-19 Upgrade JP Morgan Neutral → Overweight $17 → $20
Oct-18-19 Upgrade BofA/Merrill Neutral → Buy $18
Oct-18-19 Initiated MKM Partners Neutral $16
Oct-04-19 Upgrade Morgan Stanley Underweight → Equal-Weight $14 → $17
Oct-01-19 Reiterated MoffettNathanson Neutral $11 → $14
Sep-24-19 Upgrade Guggenheim Neutral → Buy $22
Sep-24-19 Reiterated Aegis Capital Buy $19 → $24
Sep-17-19 Upgrade Susquehanna Negative → Neutral $12 → $18
Sep-03-19 Upgrade Evercore ISI In-line → Outperform
Jul-24-19 Upgrade UBS Sell → Neutral $8 → $16
SNAP Stock 1 Day Moving Averages
Name Value Action
Exponential Moving Average (5) 17.52 Buy
Simple Moving Average (5) 17.47 Buy
Exponential Moving Average (10) 17.68 Sell
Simple Moving Average (10) 17.61 Sell
Exponential Moving Average (20) 17.76 Sell
Simple Moving Average (20) 18.27 Sell
Exponential Moving Average (30) 17.57 Buy
Simple Moving Average (30) 17.95 Sell
Exponential Moving Average (50) 17.10 Buy
Simple Moving Average (50) 16.83 Buy
Exponential Moving Average (100) 16.27 Buy
Simple Moving Average (100) 15.80 Buy
Exponential Moving Average (200) 15.04 Buy
Simple Moving Average (200) 15.16 Buy
Ichimoku Cloud Base Line (9, 26, 52, 26) 17.93 Neutral
Volume Weighted Moving Average (20) 18.04 Sell
Hull Moving Average (9) 17.55 Buy