Daily Management Review

Barron's: Snap is overrated


03/06/2017


Shares of Snap company, which owns Snapchat messenger, were overvalued by the market, said analysts of Barron's business magazine. On Friday, the stock closed at $ 27.09, while on paper was worth $ 17 on the first day after the placement.



Marco Verch
Marco Verch
According to Barron's analysts, the start-up is estimated at 34 times higher than predicted on the basis of 2017 revenues of $ 1 billion. For comparison, Facebook’s estimated value is only 10 times higher. Even taking into account possibility of strong growth, it is difficult to give Snap more than half of current value of its papers, according to the publication.

Snap’s IPO underwriters earned $ 85 million, reported CNBC with reference to submitted to the Commission on the Securities and Exchange Commission data. This amount corresponds to 2,5% of the IPO’s volume. Morgan Stanley has received 60,480,000 shares of Snap, or 30.2% of the company’s securities, earning $ 25,710,000.

Goldman Sachs has received 49.6 million shares (24.8%) and earned $ 21,080,000. JPMorgan and Deutsche Bank also obtained major shares (26.5 million and 20 million respectively). Smaller shares were distributed among more than 20 other banks.

Arguments about bad results in the last year and slow growth of the users’ base could not keep investors from buying Snap. This placement showed that market participants are hungry for technology companies, whose shares are traded on average 90% higher than the IPO price. Only two out of 14 technology companies that have passed through the IPO process in 2016 are now traded below their initial price.

Previously, companies had to achieve stable profits before they admitted to official trading on Wall Street. Now, no one is surprised with unprofitable start-ups, which draw investors into losses.

Pivotal Research analyst Brian W. Wieser also said earlier that Snap’s papers are seriously overpriced, and its business model is unclear. In his opinion, $ 10 per share would be a fair price. John Colley, Professor of Warwick Business School, voiced an idea that the company will face serious challenges in competition with Facebook and Google. "Snap Inc. earned investors piled with cash, - said the expert. -the high score reflects high liquidity and no prospects." According to him, there is more money than opportunities on the market, so that investors are choosing such risky options like Snapchat.

On Friday, the second day after the IPO, shares of Snap Inc. increased by 10% to $ 26.93 per share, market capitalization of the company climbed up to $ 31.22 billion. In the first day after the placement, Snap’s papers jumped by 45% immediately at the debut trading due to excessive demand from investors. Its value at the close of the stock exchange was $ 24.48 each at the offering price of $ 17. During the IPO, the company's shareholders could raise $ 3.4 billion - far more than previously expected.

Snap sells non-voting shares, thus saving control over the company. This means that investors have some hope and faith in the future of Evan Spiegel’s company. Despite the fact that mobile applications are Snap’s staple, the start-up calls itself "a company that is engaged in cameras."

Snapchat’s revenues in 2015 amounted to $ 52 million, in 2016 – to $ 350 million, and 2017 is expected to bring $ 1 billion, according to the company’s presentation.

source: barrons.com






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