Is SNAP a hold or sell?

Is SNAP a hold or sell?

Is SNAP a steal at current prices? Or a value trap? Is there value here?

Snap fell 40% in morning trading today. Moreover, the stock’s trajectory over the last year has included a near 90% hit. From a high of $82 to a current value of $13.46 as I type this article. However, the current market capitalization of $22 billion still appears highly overpriced.

Snap after discounting for net cash of $3.5 billion after debt repayment, yields an equity value of $18.5 billion.

However, we see free cash flow numbers of sub $300 million. Furthermore, trailing twelve months free cash flow(FCF) stands at only $209 million. A fall from 2021’s $220 million+ number.

So would you pay $18.5 billion / $209 million or 92.5x FCF?

Facebook trades at only 12x FCF. In addition, Pinterest, sports only a 10x FCF multiple after taking out net cash.

So why does Snap sport such high valuation?

Many point to the high growth rates over Covid. So ok, Covid is over. Time to move on. What are the Covid plays trading at?

Let’s start with the most famous Covid play of Zoom. Zoom churns out $1.5-$1.6 billion of free cash flow on $23 billion of market capitalization. Thus, a multiple of around 15x FCF.

DocuSign is still expensive at 33x FCF, however, claims a much higher growth rate. And, nowhere near SNAP’s almost insane multiple.

I am 40 so SNAP isn’t for me, however neither are their fundamentals.

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Lee Spelman JP Morgan

Is SNAP a hold or sell?