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Is Snap About To Break ?

|About: Facebook (FB), SNAP

Summary

12 month fair value = $10 Overvalued relative to lofty group valuations .

Near- term metrics point to disappointment ahead in q3 again

Facebook factor weighting in

Institutional sponsorship is low

Sell: SNAP Inc. (SNAP)

Recent price: $15.50, 12 month Fair value= $10

  • We look to our proprietary data screens to identify long and short opportunities that can drive excess alpha. Based on models that have long displayed excellent market-beating performance, in collaboration with our quantitative data research partner Sabrient Research, Welcome to Sabrient Systems | Sabrient Systems, their smart screens employ proven fundamentals-based multifactor quantitative models as the underlying engine for a variety of indexes, actionable idea lists, and model portfolios. This week our Top Short Play for an upcoming earnings disappointment is SNAP. This is a product of our Short Sell multi-factor Quant “Smart” Screen. Sabrient uses relevance scoring rather than filtering and sequential elimination.
  • Sabrient employs a strong forward-looking emphasis rather than just screening for historical trends. This relies upon sell-side earnings projections, including the consensus estimates as well as the internal dynamics of those estimates, i.e., the number of analysts revising up or down and the magnitude of those revisions.
  •  

Snap Inc. (SNAP) recent price $15.50: Snap Inc., formerly Snapchat, Inc., is a mass phenomenon largely with 18-30 aged Millennials’, a self-professed “camera company”. The Company’s appeal lies in its quick and spunky, temporal multimedia messaging technology that appeals to heavily more narcissistic skewed Millennials. However, SNAP’s appeal beyond this demographic seems to quickly fade as “adults” are still relatively new to Facebook and feel content with its expanded new features which also aim to cannibalize SNAP. and Its core messaging flagship product. Briefly, Snapchat is a camera application that helps people to communicate through short videos and images known as a Snap. The Company offers three ways for people to make Snaps: the Snapchat application, Publishers Tools that help its partners to create Publisher Stories, and Spectacles, its sunglasses that make Snaps. The Company’s  core business  opportunity is  driving advertising products that include Snap Ads and Sponsored Creative Tools, such as Sponsored Lenses and Sponsored Geofilters. As of December 31, 2016, on an average, 158 million people used Snapchat every day to Snap with family, watch Stories from friends, see events from around the world, and explore curated content from publishers. Our core fundamental thesis is SNAP’s phenomenal growth  will radically slow as it reaches saturation levels in its key Millennial demographic, DAU (daily average users)  y/y growth  has decayed  from 36% in q/1 to  the 20’s%, which projects to a flattening to low growth rate within 2 years.

Furthermore, Facebook (FB), the ultimate knock-off artist will steal SNAP’s thunder in other demographic markets such as the “boomers”. Given its current lofty valuations, which leave a steep plunge down to much lower and sustainable growth levels and subsequent valuations, we rate SNAP a sell. 

Overvalued to Group valuation: on P/S trading at over 32x p/sales vs 24x for the sector mean.

Name

Display RIC

Last

PE

Est. PE

EPS

Ccy

DPS

Ccy

Div. Yld (%)

ROE (%)

P/Book

P/Sales

Mcap 

  Snap Inc

14.34 c

--

-22.63

-0.44

USD

--

--

--

-45.08

11.30

32.44

17.17B

Sector average (Mean)

69.17

-21.00

-0.17

USD

0.00

USD

0.00

-217.27

12.23

25.45

686.82M

Sector median

54.65

-20.36

-0.08

USD

0.00

USD

0.00

-47.74

7.28

5.27

1.70M

Peers

DAU (daily average users)  y/y growth decay from 36% in q/1 to 21% projects to an impending flattening to low growth within 2 years.

NTM 11-Oct-17

NTM

PE

--

--

27.20

EV/EBITDA

--

--

13.86

Div Yield

--

0.00%

0.12%

EV/Sales

22.98

9.69

4.62

P/CF

--

--

18.98

P/B

4.96

7.67

4.27

And based on next 12 months estimates. SNAP trades at more than a 100% premium to its peers based on its EV/Sales ratio.

To recap our Sell Thesis:

  • SNAP missed last quarter on key growth metrics
  • ARPU (average revenue per user) -9% vs estimate in key North American market
  • Low institutional demand due to control issues limit important source of new investment demand. Currently at 35% vs.  70% norm for similar social media high growth equities.
  • Eps due 11/7, SNAP has missed estimates last 2 quarters.
  • Facebook competition may significantly curtail long term growth.
  • Multi-factor model   fair value = $ 10 (150% premium based on EV/Sales to peers based on superior revenue growth rate for next 24 months).

Singular Staff

For more information call us at 818-222-6234 or email research@singularresearch.com

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Disclosure: I am/we are long FB.