One complaint with young people today is that “social media is destroying them” in various ways. In this environment, wouldn’t it be smart for a social media CEO to say his company is definitely not social media? It’s really about connecting family and friends in a positive, uplifting way? Welcome to Snap Inc. (SNAP), highlights Michael Murphy, editor of New World Investor.
Snap bills itself as a camera company, but what they really offer is an image- and video-based social media experience. They were founded in 2010 as Snapchat, a visual messaging app that has evolved to offer various choices such as Camera, Visual Messaging, Snap Map, Stories, and Spotlight. They enable people to communicate visually for free through short videos and images. SNAP also has a popular subscription service, Snapchat+ with over 11 million members, that offers extra functions.
Snap has a loyal and somewhat different demographic from Meta Platforms Inc.’s (META) Instagram, which essentially copied their idea. The company is smaller than Meta and spends much less on R&D, but they can copy what Mark Zuckerberg does in monetizing their user base with advertising.
Since I recommended Meta in April 2018 at $159.34, the stock has way more than tripled. Meanwhile, SNAP is selling near its lows.
But is it cheap? Snap recently had an $18 billion market capitalization. It traded for 8.4x book value (which includes $3.1 billion in cash), 3.5x sales per share, and 27.9x the 2025 average consensus earnings estimate of 37 cents per share. That doesn’t look especially cheap on the surface, although it’s not out of line for a big technology company today.
But let’s look under the hood. Revenues are growing around 15% a year and I think that rate will accelerate over the next few years. That average 2025 EPS of 37 cents is in a huge range from 23 cents to 64 cents, and analysts have consistently underestimated SNAP.
Snap has served more than 75% of 13- to 34-year-olds in over 25 countries. Today, approximately 80% of Snapchatters are above the age of 18. In the June quarter, global content viewers grew 12% year-over-year, and global time spent watching content grew 25% year-over-year and 10% quarter-over-quarter. Monetizing that is Snap’s opportunity to continue to beat Wall Street estimates and attract Buy recommendations.
Recommended Action: Buy SNAP.
