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Snap

NYSE:SNAP
Snowflake Description

Adequate balance sheet with moderate growth potential.

The Snowflake is generated from 30 checks in 5 different areas, read more below.
SNAP
NYSE
$25B
Market Cap
Application Software
Company description

Snap Inc. operates as a camera company. It offers Snapchat, a camera application that helps people to communicate through short videos and images. More info.


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3 Month History
Industry
5yr Volatility vs Market

Value

 Is Snap undervalued based on future cash flows and its price relative to the stock market?

Value is all about what a company is worth versus what price it is available for. If you went into a grocery store and all the bananas were on sale at half price, they could be considered undervalued.
INTRINSIC VALUE BASED ON FUTURE CASH FLOWS
Here we compare the current share price of Snap to its discounted cash flow value.

The discounted cash flow value is simply looking at what the company is worth today, based on estimates of how much money it is expected to make in the future.

How is this discounted cash flow calculated?

  • The current share price of Snap is above its future cash flow value.
Often investors are willing to pay a premium for a company that has a high dividend or the potential for future growth.
PRICE RELATIVE TO MARKET
We can also value a company based on what the stock market is willing to pay for it. This is similar to the price of fruit (e.g. Mangoes or Avacados) increasing when they are out of season, or how much your home is worth.

The amount the stock market is willing to pay for Snap's earnings, growth and assets is considered below, and whether this is a fair price.
Price based on past earnings
Are Snap's earnings available for a low price, and how does this compare to other companies in the same industry?
  • No earnings or negative earnings.
  • No earnings or negative earnings.
Price based on expected Growth
Does Snap's expected growth come at a high price?
  • No earnings or negative earnings.
Price based on value of assets
What value do investors place on Snap's assets?
  • Good value based on assets compared to the Software industry average.
X
Value checks
We assess Snap's value by looking at:
  1. Is the discounted cash flow value less than 20%, or 40% of the share price? (2 checks) (Click here or on bar chart for details of DCF calculation.)
  2. Is the PE ratio less than the market average, and/ or less than the Software industry average (and greater than 0)? (2 checks)
  3. Is the PEG ratio within a reasonable range (0 to 1)? (1 check)
  4. Is the PB ratio less than the Software industry average (and greater than 0)? (1 check)
  5. Snap has a total score of 1/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations including PE and PEG Ratio.
    Note 2: PEG ratio is based on analysts EPS growth expectations in 1 year (29.39%).

    Full details on the Value part of the Simply Wall St company analysis model.
X
Discounted cash flow (Free cash flow to Equity)

The calculations below outline how an intrinsic value for Snap is arrived at by discounting future cash flows to their present value. We use analyst's estimates of cash flows going forward 5 years.

See our documentation to learn about this calculation.

5 year cash flow forecast

Present value of next 5 years cash flows:
$175

Terminal Value

Terminal Value = FCF2021 × (1 + g) ÷ (Discount Rate – g)

Terminal Value = $1,662 × (1 + 2.3%) ÷ (8.92% – 2.3%)

Terminal value based on the Perpetuity Method where growth (g) = 2.3%:
$25,814

Present value of terminal value:
$16,841

Equity Value

Equity Value (Total value) = Present value of next 5 years cash flows + terminal value

Value = Total value / Shares Outstanding ($17,017 / 1,179)

Value per share:
$14.43

Current discount (share price of $21.22): -47%



Estimate of Discount Rate

The discount rate, or required rate of return, is estimated by calculating the Cost of Equity.

Discount rate = Cost of Equity = Risk Free Rate + (Levered Beta * Equity Risk Premium)

Discount rate = 8.92% = 2.33% + (0.859 * 7.67%)



Estimate of Bottom Up Beta

The Levered Beta is the Unlevered Beta adjusted for financial leverage. It is limited to 0.8 to 2.0 (practical range for a stable firm).

Levered Beta = Unlevered beta (1 + (1- tax rate) (Debt/Equity))

0.859 = 0.858 (1 + (1- 30%) (0.06%))

Levered Beta used in calculation = 0.859



Assumptions
  1. The risk free rate of 2.33% is from the 10 year government bond rate in US.
  2. The bottom-up beta is estimated by analysing other companies in the same industry.
  3. The Equity Risk Premium is calculated by subtracting the risk free rate from the market return premium (10%) (source: Buffet).
  4. The dividend discount model is automatically used for companies in the following industries: Banks, Insurance, Real Estate Investment Trusts (REITs), Diversified Financial Services and Capital Markets.

Future Performance

 How is Snap expected to perform in the next 1 to 3 years based on estimates from 30 analysts?

    The future performance of a company is measured in the same way as past performance, by looking at estimated growth and how much profit it is expected to make.

    Future estimates come from professional analysts. Just like forecasting the weather, they don’t always get it right!
    3 year growth
    92%
    Expected earnings growth over 3 years.
    Future Earnings growth analysis
    Is Snap expected to grow at an attractive rate? We look at the 1 year and 3 year growth below.

    Are Snap's annual earnings growth expected to exceed 3.4% over the next 3 years?

    • Loss making next year.
    • After 3 years
    1 & 3 year estimated growth in earnings
    Past and Future Earnings per Share
    The accuracy of the analysts who estimate the future performance data can be gauged below. We look back 3 years and see if they were any good at predicting what actually occured. We also show the highest and lowest estimates looking forward to see if there is a wide range.
    Analysts growth expectations
    2 year growth check
    Super high growth metrics x1.5?

    Which of the these is expected to increase by over 50% in 2 year's time?

    • Revenue
    • Cash flow is expected to increase but Snap may still be loss making next year.
    • Profit is expected to increase but Snap may still be loss making in 2 years.
    Performance in 3 years
    In the same way as past performance we look at the future estimated return (profit) compared to the available funds. We do this looking forward 3 years.
    • Snap is expected to perform strongly, Return on Equity (ROE) in 3 years is estimated to be above 20%.

    Improvement & Relative to industry
    • Expected to be less than the Software industry average.
    • An improvement in Snap's performance (ROE) is expected over the next 3 years.
    X
    Future performance checks
    We assess Snap's future performance by looking at:
    1. Is the growth in earnings expected to beat the low risk savings rate, plus a premium to keep pace with inflation, in 1 year and 3 years? (2 checks)
    2. Does the average analyst expect Revenue to increase by 50% or more in 2 years? (1 check)
    3. Does the average analyst expect Operating Cash Flow to increase by 50% or more in 2 years? (1 check)
    4. Does the average analyst expect Net Income (Profit) to increase by 50% or more in 2 years? (1 check)
    5. Is the Return on Equity in 3 years expected to be over 20%? (1 check)
    Some of the above checks will fail if the company is expected to be loss making in the relevant year.
    Snap has a total score of 3/6, see the detailed checks below.

    Note: If no +3 year data is available, +2.5 year data may be used.

    Note 2: We use GAAP per Share in all our calculations.

    Full details on the Future part of the Simply Wall St company analysis model.

    Past Performance

     How has Snap performed over the past 5 years?

    The past performance of a company can be measured by how much growth it has experienced and how much profit it makes relative to the funds and assets it has available.
    Past earnings growth
    Below we compare Snap's growth in the last year to its industry (Software).
    Past Earnings growth analysis
    We also check if the company has grown in the past 5 years, and whether it has maintained that growth in the year.
    • Snap does not currently make a profit.
    Profit History
    Snap's revenue and profit over the past 5 years is shown below, any years where they have experienced a loss will show up in red.
    Performance last year
    We want to ensure a company is making the most of what it has available. This is done by comparing the return (profit) to a company's available funds, assets and capital.
    • Negative return on shareholders funds (ROE) last year.
    • Snap had negative or no return on assets (ROA) last year.
    • Return based on revenue producing assets (ROCE) is negative or zero.
    X
    Past performance checks
    We assess Snap's performance over the past 5 years by checking for:
    1. Has earnings per share (EPS) increased in past 5 years? (1 check)
    2. Has the EPS growth in the last year exceeded that of the Software industry? (1 check)
    3. Is the current EPS growth higher than the average annual growth over the past 5 years? (1 check)
    4. Is the Return on Equity (ROE) higher than 20%? (1 check)
    5. Is the Return on Assets (ROA) above industry average? (1 check)
    6. Has the Return on Capital Employed (ROCE) increased from 3 years ago? (1 check)
    The above checks will fail if the company has reported a loss in the most recent earnings report. Some checks require at least 3 or 5 years worth of data.
    Snap has a total score of 0/6, see the detailed checks below.

    Note: We use GAAP Earnings per Share in all our calculations.

    Full details on the Past part of the Simply Wall St company analysis model.

    Health

     How is Snap's financial health and their level of debt?

    A company's financial position is much like your own financial position, it includes everything you own (assets) and owe (liabilities).

    The boxes below represent the relative size of what makes up Snap's finances.

    The net worth of a company is the difference between its assets and liabilities.
    Net Worth
    • Snap is able to meet its short term (1 year) commitments with its holdings of cash and other short term assets.
    • Snap's cash and other short term assets cover its long term commitments.
    Balance sheet
    This treemap shows a more detailed breakdown of Snap's finances. If any of them are yellow this indicates they may be out of proportion and red means they relate to one of the checks below.
    Assets
    Liabilities and shares
    The 'shares' portion represents any funds contributed by the owners (shareholders) and any profits.
    • Low level of unsold assets
    • Company has no debt.
    Historical Debt
    Nearly all companies have debt. Debt in itself isn’t bad, however if the debt is too high, or the company can’t afford to pay the interest on its debts this may have impacts in the future.

    The graphic below shows equity (available funds) and debt, we ideally want to see the red area (debt) decreasing.

    If there is any debt we look at the companies capability to repay it, and whether the level has increased over the past 5 years.
    • The level of debt (0%) compared to net worth is satisfactory (less than 40%).
    • Past 5 year debt information not available.
    • Total debt is not well covered by annual operating cash flow (less than 20% of total debt).
    • Interest on debt is well covered by earnings (571.8x coverage).
    X
    Financial health checks
    We assess Snap's financial health by checking for:
    1. Are short term assets greater than short term liabilities? (1 check)
    2. Are short term assets greater than long term liabilities? (1 check)
    3. Has the debt to equity ratio increased in the past 5 years? (1 check)
    4. Is the debt to equity ratio over 40%? (1 check)
    5. Is the debt covered by short term assets? (1 check)
    6. Are earnings greater than 5x the interest on debt (if comapany pays interest at all)? (1 check)
    7. Snap has a total score of 4/6, see the detailed checks below.


    Full details on the Health part of the Simply Wall St company analysis model.

    Dividends

     What is Snap's current dividend yield, its reliability and sustainability?

    Dividends are regular cash payments to you from the company, similar to a bank paying you interest on a savings account.
    Annual Dividend Income
    Dividend payments
    0%
    Current annual income from Snap dividends.
    If you bought $2,000 of Snap shares you are expected to receive $0 in your first year as a dividend.
    Dividend Amount
    Here we look how much dividend is being paid, if any. Is it above what you can get in a savings account? It is up there with the best dividend paying companies?
    • Paying below low risk savings rate. (2.25%)
    • Paying below the markets top dividend payers. (3.18%)
    Historical dividend yield
    It is important to see if the dividend for a company is stable, and not wildly increasing/decreasing each year. This graph shows you the historical rate to count toward your assessment of the stock.

    We also check to see if the dividend has increased in the past 10 years.
    • Not paying a notable dividend.
    • Not paying a notable dividend.
    Current Payout to shareholders
    What portion of Snap's earnings are paid to the shareholders as a dividend.
    • Not paying a notable dividend.
    Future Payout to shareholders
    • Insufficient estimate data to determine if a dividend will be paid in 3 years.
    X
    Income/ dividend checks
    We assess Snap's dividend by checking for:
    1. Firstly is the company paying a notable dividend (greater than 0.5%) - if not then the rest of the checks are ignored.
    2. Current dividend yield, is there one at all, is it higher than the low risk savings rate, and is it above the top 25% of dividend payers? (2 checks)
    3. Have they paid a dividend for 10 years, and during this period has the dividend been volatile (drop of more than 25%)? (1 check)
    4. If they have paid a dividend for 10 years has it increased in this time? (1 check)
    5. How sustainable is the dividend, can Snap afford to pay it from its earnings today and in 3 years (Payout ratio less than 90%)? (2 checks)
    6. Snap has a total score of 0/6, see the detailed checks below.


    Full details on the Dividends part of the Simply Wall St company analysis model.

    Management

     What is the CEO of Snap's salary, the management and board of directors tenure and is there insider trading?

    Management is one of the most important areas of a company. We look at unreasonable CEO compensation, how long the team and board of directors have been around for and insider trading.
    CEO
    Evan Spiegel, image provided by Google.
    Evan Spiegel
    COMPENSATION$2,404,840
    AGE26
    CEO Bio

    Mr. Evan Spiegel is a Co-Founder of Snap Inc. and serves as its President. Mr. Spiegel has been Chief Executive Officer and Director of Snap Inc. since May 2012.

    CEO Compensation
    • CEO's compensation has increased whilst company is loss making.
    • CEO's compensation appears reasonable.
    Management Team

    Evan Spiegel

    TITLE
    Co-Founder
    COMPENSATION
    $2,404,840
    AGE
    26

    Robert Murphy

    TITLE
    Co-Founder
    COMPENSATION
    $259,419
    AGE
    28

    Imran Khan

    TITLE
    Chief Strategy Officer
    COMPENSATION
    $5,495,657
    AGE
    39

    Timothy Sehn

    TITLE
    Senior Vice President of Engineering
    COMPENSATION
    $41,408,520
    AGE
    36

    Andrew Vollero

    TITLE
    Chief Financial Officer
    AGE
    50

    Chris Handman

    TITLE
    General Counsel
    AGE
    44
    Board of Directors Tenure

    Average tenure of the Snap board of directors:

    Board tenure
    2.3 years
    • The average tenure for the Snap board of directors is less than 3 years, this suggests a new board.
    Board of Directors

    Michael Lynton

    TITLE
    Chairman
    COMPENSATION
    $0
    AGE
    57

    Evan Spiegel

    TITLE
    Co-Founder
    COMPENSATION
    $2,404,840
    AGE
    26

    Robert Murphy

    TITLE
    Co-Founder
    COMPENSATION
    $259,419
    AGE
    28

    A.G. Lafley

    TITLE
    Director
    COMPENSATION
    $2,612,654
    AGE
    70

    Stan Meresman

    TITLE
    Director
    COMPENSATION
    $0
    AGE
    70

    Mitch Lasky

    TITLE
    Director
    COMPENSATION
    $0
    AGE
    55
    Recent Insider Trading
    Who owns this company?
    X
    Management checks
    We assess Snap's management by checking for:
    1. Is the CEO's compensation unreasonable compared to market cap and profit (greater than 0.5% of the company's profit + 0.03% of market cap)? (1 check)
    2. Has the CEO's compensation increased more than 20% whilst the EPS is down more then 20%? (1 check)
    3. Is the average tenure of the management team less than 2 years? (1 check)
    4. Is the average tenure of the board of directors team less than 3 years? (1 check)
    5. Snap has a total score of 6/6, this is not included on the snowflake, see the detailed checks below.


    Note: We use the top 6 management executives and board members in our calculations.

    Note 2: Insider trading include any internal stakeholders and these transactions.

    Full details on the Management part of the Simply Wall St company analysis model.

    Company News

    Company Info

    Description

    Snap Inc. operates as a camera company. It offers Snapchat, a camera application that helps people to communicate through short videos and images. The company also provides a suite of content tools for partners to build, edit, and publish snaps and attachments based on editorial content; and Spectacles, which are sunglasses that capture video from a human perspective. The company was formerly known as Snapchat, Inc. and changed its name to Snap Inc. in September 2016. Snap Inc. was founded in 2010 and is headquartered in Venice, California.

    Details
    Name:Snap Inc.
    Ticker:SNAP
    Exchange:NYSE
    Founded:2010
    Market Cap:$25,018 million
    Website:http://www.snap.com
    Listings
    Map

    63 Market Street, Venice, 90291, United States

    Number of employees
    Street

    Current staff
    Staff numbers
    1,859
    Snap employees.
    Industry
    Industry:Application Software
    Sector:Software and Services