Okay, so the next stock on this list is SNAP.
Now snap has had a wild week. After FB earnings this week, the stock fell about 18%
because of fears that Snap would suffer because of apple's new privacy settings.
However, that was not the case. Snap beat estimates on earnings, revenue, and user growth.
They also recorded their first profitable quarter since becoming a public company.
So snap's numbers came in at 22 cents vs 10 cents expected. Revenue came in
at $1.3B vs $1.2B, and daily active users came in at 319m vs 316.9,
expected. Their average revenue per user increased at $4.06 vs $3.79 expected.
So overall, this is an excellent report, especially when plenty of
people were nervous apple would hurt the company more than expected.
Okay, so when we look at this quarter charted out, we see that this actually was a pretty
substantial amount of profit for Snap to make. Again it was the first time it was reported as
profitable since going public. Since they had to deal with the same ad challenges meta had to,
it's pretty impressive. Snap's CFO also said during the earnings call that Snap has been
mindful of making privacy inherent to its product. As a result, the changes caused by the iOS
changes are likely to be experienced differently for our business than perhaps for others.
When we look at the last 10 years of revenue and net income, we can see the company has
been doing well in terms of sales growth. And on top of this, we can see that snaps
losses have become more slight every year, so overall, this is a pretty good chart.
So when we look at their revenue vs expenses,
we can see that only a small amount of their revenue is actually eaten up by the cost of
revenue. We can see that most of their revenue vs expenses goes to research and development.
Now Snapchat provides some pretty helpful charts.
The first one here shows their daily active users each quarter. We can see that Snap has
done a pretty good job consistently increasing its daily active users.
When we dig a little further into this, we can see that the user growth is broken
down by the area of the word. While they are still growing in North America and Europe,
the rest of the world is where most of the growth is coming from. And the problem with this is a
new user in Mozambique, for example, where the average annual income is around $460
a year, isn't as valuable to advertisers as in the US where the average income is $66,000.
We can see this in the charts Snap shows explaining their average quarterly revenue
per user broken down by different parts of the world. The US is still the dominant
revenue driver for the company, and surprisingly Europe produces way less. However, it seems like
a European user provides about double the revenue a customer located in the rest of the world does.
When we look at snaps forecasted earnings, we can see the growth
is currently projected to continue, with 2022 expected to be the first profitable year for
Snap. With revenue and profits expected to grow from $4b and a loss of $640m over the past year,
to $10.7B in revenue and $2.7b in profits by 2024.
So when we look at their revenue growth, we can see Snap is currently forecasted to grow
at 40 - 30% over the next few years. But the issue with using this to value them is
if they're growing at a much lower rate by 2024,
the stock will trade at a much lower multiple by then. So we should use 20-25% growth instead.
So a growth rate of 20% comes out to a fair pe value of 53,
and a growth rate of 25% comes out to a fair pe value of 80.
So when we look at this valuation charted out, we can see Snap has a pretty insane
amount of upside with a 2024 valuation projection of $91 for the bottom end and
a top-end upside of $138. Now keep in mind this does depend on the forecasts happening.
Snap will have to execute it's business operations well to meet these numbers. Still,
so far they've actually done a much better job than we give them credit for.
Now I know a lot of people are skeptical about Snap, so just for fun,
I cut the PE ratios in half, so a valuation of 26-40, and even then,
snap still has a lot of upside with a 2024 valuation between $46 and $69 or 17-76% upside.
So I do think Snap is a pretty good buy right now. The company is doing much better than
people realize. As long as they keep doing what they're already doing, I don't see any
reason why this stock price won't be moving up a lot over the next couple of years.
Now that video you just watched is part of a much larger video where I covered the earnings
for multiple stocks, so if you want to see the whole thing, click this link right here.
And as always, thanks for watching!