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Q1 2022 hedge fund letters, conferences and more
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The rise and fall of Snapchat’s share price
- During the pandemic, Snapchat’s share price surged to US$83
- However, subsequent earnings releases were very disappointing and brought the price back to pre-pandemic levels
Let’s go to the latest annual report
First, you need to understand the underlying drivers
What are internal revenue drivers?
What possibilities does Snapchat have to increase revenue?
Snapchat was able to rapidly increase its users over time
North America and Europe start maturing, Asia drives growth
Internal revenue drivers
Snapchat has still difficulties monetizing its users
Though, it makes some progress in the US
From the annual report, we extract the data for quantity and price
Revenue is automatically calculated by simple multiplication
Now, we have our framework for forecasting revenue
Next, we want to understand the latest business developments
Snapchat sees a massive opportunity to expand
- It estimates the total addressable market to be the number of global smartphone users
- That’s why the penetration rate looks rather small and there seems to be a massive potential
- But…
The relevant market is mainly just young generation
- Snapchat considers the population between 13 and 34 years as its most important market
Penetration is already high for the main target group
- In developed markets, the penetration rate is close to maximum
- This means that growing quantity (number of users) likely must come from emerging markets, in particular, Asia
Low growth for US and Europe, higher growth for rest of the world
Now, we forecast the price component
How good is Snapchat in monetizing its users?
The US market seems to be the easiest one to monetize
Monetization could converge closer to Twitter’s results
Revenue is calculated automatically; forecast is complete
Let’s take a look at the recent filings
What is an 8-K filing?
One sentence has driven stock market sentiment
In fact, we are not that smarter than before
- A company always has more information than any investor
- The company did not provide any guidance on how bad the impact actually is
- The only thing we can take away from the company’s statement is to reconsider our revenue drivers
- But if we take a look at Snapchat’s fundamentals, the market correction was just a question of time…
Compare fundamentals: Gross profit margin
- FB is gross profit margin champion, Snapchat is worse than Pinterest
Compare fundamentals: EBIT margin
- FB is EBIT margin champion, GOOGL is second place
- Operating business is a disaster at Snapchat
Compare fundamentals: Net margin
- SNAP has never made a profit, Twitter only in 2018 and 2019 because of tax adjustments
- FB and GOOGL are killing it
Compare fundamentals: Free cash flow to the firm
- SNAP is bleeding
- Twitter’s return to investors has been tiny
- FB and GOOGL are massive value generators
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Aticle by Andrew Stotz, Become a Better Investor.
