Snap (NYSE:SNAP) is having an impressive 2019 with a 100% YTD increase, and although its current price is off from this year's highs, the stock's performance is absolutely admirable. But is there value in the stock right now in order to dive in? Let's take a look at various aspects such as users, valuation, earnings and technicals in order for investors to answer that question.
Like any other social media company, investors tend to take into account it's Daily Active Users (DAU) to see if the social network is gaining popularity or not. By the end of Q2 2019, Snap's DAU reached 203 million worldwide, an absolute record for the company. In the graph below we can see the development and increase of it's DAU over the years.
Daily Active Users is definitely a key measure that investors will be on the lookout when the company reports earnings next week on Oct 22. According to eMarketer, Snap's user growth is expected to flatten from now up to 2023, adding only 600K new users in the US. However, Snap continues to be the preffered social network among teens and the company may add 1.2 million new users worldwide of the ages between 12 and 17 by 2022 (eMarketer).
Snap's Intrinsic Value based on Future Cash Flows is $14.27, not too far apart from Thursday's close at $13.78. So, its certain to say that the stock is trading close to it's fair value and investors should analyze if the juice is worth the squeeze right now.
Since the company continues to be loss-making, we cannot analyze key valuation metrics such as P/E or PEG. But we can use the Price to Sales P/S ratio to see where it stands compared to it's peers. Snap currently holds a P/S of 15.9 meaning investors are paying 15.9x for each dollar of the company's sales or revenue. In other words, investors are highly expecting Snap's sales to continue growing. And numbers don't blame em', Snap has delivered revenue growth over the last five quarters beating estimates.
Now, when comparing it's P/S to other social media companies like Facebook (NASDAQ:FB) (9.6x) and Twitter (NYSE:TWTR) (10.1x), we see it is overvalued.
Taking a look at the technical side we can note that the $18 mark has been a really strong resistance in the last couple of years as seen in the Monthly Chart below:
Investors have seemed to really take this level pretty serious cause when the stock has traded close to this price, a lot of vendors have showed up dumping the stock, making the volume on that trading session much higher than the average.
If investors take these $18 as an objective, one might think there's a nice 30% on the upside at the current price, perhaps.
In conclusion, I believe there is not much value in Snap stock right now most important when analyzing its current valuation. Next week will definitely be key when the company delivers earnings. Wall Street expects losses of - $0.19 per share and $434.7M in revenue.