Twitter executives didn’t hold an earnings call, citing the company’s pending sale to Elon Musk, but they noted in a press release that “advertising industry headwinds associated with the macroenvironment” contributed to the revenue miss. Social media rival Twitter, which is nearly as dependent on ad dollars, lent that argument some credence Friday morning when it reported second-quarter revenue of $1.18 billion, well short of analyst estimates of $1.32 billion, and down 1% from the year before. About 99% of Snap revenue is generated by ads. Snap executives largely pinned the dour performance and outlook on a rapid pullback among advertisers, who are tightening their purse strings amid a period of economic uncertainty. Those comments sent Snap shares tumbling 39% in mid-day trading Friday, marking the company’s second major stock collapse this year. As a result of the rapidly shifting terrain, Snap officials refused to provide guidance for the current quarter, other than to note that July revenue so far is “approximately flat” year-over-year. Snap’s leadership blamed a fast-deteriorating global advertising market following the release of middling second-quarter results, which fell slightly short of Wall Street’s revenue and earnings estimates. At least, that’s what Snap executives argued Thursday-even if the full forecast might be more complicated than they say. Mark Hake writes about personal finance on and runs the Total Yield Value Guide which you can review here. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines. Hake did not hold any position (either directly or indirectly) in the securities mentioned in this article. Despite SNAP’s present troubles, expect SNAP stock to be 39% higher within two years from higher free cash flow. That is an excellent return on investment (ROI) for most investors. Even if it takes two years, the average compounded return will still be 17.9% for each of the next two years. Let’s assume that it takes over one year for this price target to hit. So this also implies that even with the lower Q4 estimates, the long-term target price for SNAP stock is $66.68 per share. This means that the $106.7 billion target market value is 39% higher than its $76.6 billion market cap today. But if we determine its future value by using the FCF yield metric - this is a rate that we can use to estimate how valuable its FCF is to the market.įor example, if we divide $1.6 billion in FCF by an FCF yield of 1.5%, the target market cap will be $106.7 billion (i.e, $1.5b/0.15=$106.7b). Right now, SNAP has a market capitalization of $76.64 billion. If revenue doubles to $8 billion by 2023, even with lower iOS ad sales, it is likely that FCF will be much higher as well.įor example, using a 20% FCF margin, we can estimate that FCF will hit $1.6 billion by 2023. These are the same analysts that were upset that that Q3 revenue came in below their forecasts.Īssuming that the company will produce free cash flow at a high margin in two years will allow us to to forecast the stock price. Analysts are still projecting revenue to hit $8 billion in 2023, up from $4.02 billion this year, according to Seeking Alpha. That does not seem too high for a company that will be growing revenue by over 100% by then. That puts SNAP stock on a forward price-to-earnings (P/E) valuation metric of just 35 times. As it stands now, SNAP stock’s valuation is starting to look interesting.įor example, these same analysts now project that earnings in two years will hit $1.35 per share at the end of 2023. Moreover, according to the Seeking Alpha, the Q4 guidance was well below (-13%) analysts’ expectations.īut this just explains why SNAP stock has fallen. For example, according to one analyst at Seeking Alpha, the company’s Q3 revenue was 3% below analyst expectations. Moreover, SNAP still projected that its Q4 revenue would be higher than Q3 revenue, albeit lower than analysts’ prior projections. More importantly, FCF became positive at $52 million in Q3 2021, compared to $70 million in the prior year. Analysts overlooked this in the Q3 earnings release.įor example, operating cash flow was $72 million in Q3 2021, compared to a loss of $55 million in Q3 2020. One reason is that SNAP is now making operating and free cash flow (FCF) profits.
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