It’s amazing to me how these tech companies can fetch for such high valuations with investors knowing the fickle nature of the industry. Twitter comes to mind as a recent example, and I wonder what Myspace would have raised during its prime.
They value it at about 25x on estimated 2017 earnings, which are themselves estimated to grow about 300% from 2016.
Hey wait, isn’t this just another crappy advertising company that isn’t making money?
Quick glance; 2016 revenue is expected to be $300M, thus 83X price to sales ratio, the S&P500 is 2X. And let me guess, they are still losing money?
So late bull market, buy some overvalued junk, would need to hit $1.2B in steady annual profits to justify that valuation, but you’ll have to wait till after the bear market before the earnings happens (and during that bear market you can get this company much cheaper), if the earnings ever happens, which they probably won’t…uhh no thanks.
Snapchat’s expected revenue for FY 16 is towards the high end of $350 million, and FY 17 is projected to be $1B. Sure, that’s a “projected” 186% growth, but we’ve seen this story before. A year is a long time in the technology industry, and I just see another situation where investors (not the early institutional ones) are going to get burned.
Yeah, very large projected growth at the end of a bull market, people projected things in 2007 too.
I work on these types of tech valuations, and have seen some questionable things. They are priced very “blue sky”. This is good time to cut investors in on future losses (or transfer existing equity to new investors), we learned that in L2.
Companies and investors-alike build castles in the sky in tech companies like it didn’t go out of style in the early 2000s. Instead of the new platform being the revolutionary internet, now it’s the revolutionary by-products of what the internet has made possible. It’s merely an extension. This company’s industry has 0 barriers to entry. Gone are the days of sensibility.
Wow, insane valuation. Social stuff scares me and I stay away, only company that seems to have any proven ability is Facebook. I am only slightly intrigued since FB was interested in buying snap chat but I am not sure I would care for the firm without Zuckerberg at the helm.
Unrealistic valuations don’t preclude ability to make money off of these IPOs (tech or otherwise). The hype seems enough for these stocks to go through the roof, only to be brought down to earth when they fail to deliver.
Take TWLO for example. It doubled within months of its IPO. Whether it holds or tumbles like FIT or GPRO is another story. I can see the same happening for Uber, Airbnb, Didi Chuxing if they go public.
True, but I Uber and Airbnb are special in that their business models rest on an economic foundation that actually involve monetary transactions unlike stuff like Snapchat that are mostly used by poor uneducated teenagers.
nice, why not use that money to buy DB instead for less money?
agree on uber and airbnb
I actually don’t even know what Snapchat is, I’ve got Instagram, though maybe these aren’t even related. You make it sound not so attractive, like Myspace or something…
I haven’t used it either but from what I read it is a “fun” messaging app where you can send edited photos and videos to others after which these media will self destruct and disappear (hence the ghost logo), an innovation that allows avoid costly server fees for storing large amounts of data.
In other words the perfect time waster app. The only way you can monetize it is to exploit people and hook them up. No value creation whatsoever.
^Since when did value creation = making money? Activision Blizzard makes all its money because a good % of people are level 95 shadowlords who haven’t seen the sun in months. What matters is that lots of kids use snapchat, and there’s potential for ad revenue. Whether it lasts long or not isn’t the point (could be the next Myspace). What matters is that it’s pretty big right now which justifies (?) the initial IPO valuation due to the hype.
HA!!
True, but to a rational long-term investor it needs to last long enough to grown into that valuation so they can eventually realize gains, which seems pretty iffy. These types of names seem like games of hot potato to me, they just keep hyping forever, so the last round can realize gains, until eventually someone gets stuck with it (Twitter).
just take the money and put in FB, easy
I think purealpha is spot on here. Unless you’re playing the greater fool theory (not advised), stay away.
I agree, its like people trading penny stocks. Everyone tries to get some hype on it to get a little momentum and push the value up then dump it on some poor sap. Crazy people will pay for snapchat at a valuation like that
I can’t stand Snapchat; the dog face and everything else is just super annoying (I’m probably just getting old too). That said, I’m not going to knock this IPO because FB came out with its IPO at $104B in 2012. Back then it also seemed crazy at 20-30x forward/trailing revenues and over 100x P/E. If you bought on the dip at $19/sh, you would have made a killing as it is now trading at $130/sh with a $380B market cap.
I simply don’t know enough about the space, but what I would point out now is that FB is still trading at ~15x forward sales (I’m guessing there based on 1H16 results b/c I don’t have analyst estimates for 2016) and about 40x 2016 PE and 30x 2017 PE. FB has been posting strong ad sales, but I would say they have a much lower growth rate going forward vs. Snapchat. If they do get to $1B in 2017, then it’s not such a ridiculous valuation (vs. FB historically, but def ridiculous for guys like me who look at REITs and other boring stocks).
All told, as I’ve invested more, I don’t brush stuff aside like I used to just because it seems outrageous. For me to get comfortable though, I’d really like to understand the market potential and what Snap’s potential share could be, building in a decent margin of safety of course in the underwriting for execution failure and competition.