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Snap - A Cool App Or A Cool Investment?

Summary

There' too much hype about the company

Intrinsic value at 11$ per share

Expect a price volatility!

Is Snap another Twitter or a new Facebook?

Recently David Tepper revealed on CNBC that he owns quite a chunk of Snap and in case the price goes below 20$, he will be keep on buying it.

He reason: The stock has a potential for growth considering all the older generatioin will be forced to use it to connect with their children when they become a work force. With deeper analysis, we'll uncover the positives and negatives about the company.

The interviews of the management team left me with the impression that they are more interested in building the business rather than focusing on just the user base growth. They also seem to be very innovation oriented and not too afraid of introducing them. On top their product, they've introduced Lenses, Geofilters, voice and video calling and spectacles (although I have to say that after using them all, Snap' voice and video calling is still a little behind Viber and Whatsapp). All the product seem to be focused on adding a more depth or user interactivity than else!

But on the other hand, Snap has a valuation problem.

If you look at their relative value, in 2011 Facebook paid a 33.3$ per MAU for Instagram and 42$ per MAU for Whatsapp. With that, Snap would be valued over 10 to 12 billion dollars in market cap!

With free cash flow analysis, if you assume that they will grow by 40%, which is a little below Facebook' 50% and above Google comparable period growth, over the next 4, 5 years, then the intrinsic value is expected to be around 10-13$ a share!

But it will be hard for them to sustain that much growth, given they are facing much stiffer competitor in Instagram in an industry, where winner takes all by competing for the limited time slot of the busy smart phone owner!

Plus, I don't like the fact that they are more focused on the iOS system than the Android given the fact that Android is capturing bigger slice of the smart phone market every year!

Finally, there' a 2 billion dollar commitment fee with Google for cloud storage fee for the next four years! So the company is expected to drain more cash for the future!

So I have a negative outlook on the stock, while I expect a price volatility!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.