Snap Stock Opens Strong, Long-Term Value Debated

Making its highly anticipated debut on the New York Stock Exchange, Snap Inc.’s stock opened at $24 per share on Thursday. Showing strong investor interest, that’s 41% higher than the $17 share price the company set for itself.

But analysts say the success of Snapchat’s parent company is far from a sure thing.

“Snap opened strong today,” said Forrester analyst Jessica Liu. “But while the company’s optimism for its potential growth makes sense given the trajectory of previous social media darlings, there's reason for caution.”

“First, Facebook's success is an anomaly,” Liu noted. “Second, while Snapchat has a grasp on mobile video, its TV-like revenue pursuit is new and untested.”

Taking an even stronger stance, Pivotal Research analyst Brian Wieser believes that the market is significantly misjudging Snap’s value. 

“It is significantly overvalued given the likely scale of its long-term opportunity and the risks associated with executing against that opportunity,” Wieser warns in a new note to investors. “We value Snap at $10 per share.”

“As the stock priced well above this level in its IPO, we rate its shares [as a] sell,” Wieser said.

Among other issues, Wieser recently suggested that Snap may have overstated the degree to which ad dollars are shifting from TV to digital channels, in its recent S-1 filing.

The problem, according to Wieser, is that the self-described “camera company” views decline in TV consumption in the same way that viewing has historically been defined.

This perspective, argued Wieser, “will overstate the degree to which budgets may shift from owners of conventional TV networks to digital media owners with TV-like characteristics” -- i.e., Snap and other video platforms.

Citing Nielsen data, Snap’s S-1 explains: “People between the ages of 18 and 24 spent 35% less time watching traditional TV in an average month during the second quarter of 2016 compared to the second quarter of 2010.”

Yet the definition of TV on which this decline is based excludes most consumption of video content through VOD, video game consoles, over-the-top devices, on laptops, desktops, tablets and other mobile devices -- if they are not attached to TV sets.

Including these other platforms, viewing has likely risen slightly across all age groups over the past six years, Wieser estimated.

“Excluding short-form content such as that which dominates YouTube, consumption levels are probably closer to flat across most populations when we compare comprehensive data for any given age group vs. that same age group in prior years,” he contends.

At the moment, advertising is everything to Snap. Last year, in fact, ads accounted for 96% of the company’s revenue.

Regardless of where it’s coming from, Snap is attracting more ad dollars. Last year, it saw revenue of $404.5 million -- up more than 600% from the $58.7 million it generated in 2015.

Snap is also successfully making more ad revenue from each its users. Worldwide, average revenue per user (ARPU) in the last three months of 2016 was $1.05 -- up from $0.31 during the same period a year earlier. In North America, Snap’s ARPU in the last three months of 2016 was $2.15 -- up from $0.65 year-over-year.

Needless to say, Snap has plenty of fans in the marketing industry.

“We’re bullish on Snapchat and not just because we were the first company to release a self-service platform for buying Snap Ads through the API.

“We’ve seen tremendous results from the 20+ campaigns running through 4C,” said Aaron Goldman, CMO at 4C Insights -- a data science and media technology company, and Snapchat partner.

“Video view rates are very high and downstream activity such as web visits and app installs fare quite well relative to our clients’ goals and benchmarks from other social and mobile networks,” Goldman added. “In total, we’ve seen ad spend on Snapchat through 4C grow [10 times] since November 2016.”

That said, as Forrester’s Liu insists: “Snapchat has much room for improvement in the areas of user growth and delivering data and measurement to advertisers in order to live up to its high expectations.”

Next story loading loading..