Is Snap a Value Investment?

Many will ask is Snap a value investment because the company behind Snapchat was trading at $13.98 on 6 June 2019. Yet, Zephoria estimates Snapchat had 190 million users in 1st Quarter 2019.

Moreover, Zephoria notes, “as of March 2019, “Snapchat reached 90 percent of all 13-24-year-olds and 75 percent of all 13-34-year-olds in the U.S.” Additionally, Zephoria calculates Snapchat had 60 million active users in Europe and 79 daily active users in North America in 1st Quarter 2019.

Hence, Snap (NYSE: SNAP) has a low share price; yet its social network reaches advertisers’ most sought after consumers. Advertisers like the under-34 crowd because they are more likely to change brands. Moreover, today’s 25-year-old club girl is tomorrow’s soccer mom; and household shopper, and she is using Snapchat.

Is Snap Making Money?

Notably, Zephoria claims Snapchat’s average revenue per user (APRU) was $1.21 in 1st Quarter 2019. Snapchat’s APRU grew by 39% between 1st Quarter 2018 and 1st Quarter 2019, Zephoria estimates.

However, Snap reported an operating loss of -$316 million and a net loss of $310.41 million on 31 March 2019. Plus, Snap recorded a gross profit of $116.66 million on revenues of $320.43 million for 1st Quarter 2019.

Thus, Snap’s losses are nearly equal to its revenues. Under those circumstances, I have to wonder how Snap stays in operations. My guess is that Snap is borrowing money to cover its operating costs.

Snap is Losing Money

Correspondingly, Snap reports a negative operating cash flow of -$66.18 million and a negative free cash flow of -$77.96 million for 31 March 2019. Plus, there is an investing cash flow of -$80.93 million on the same day.

Thus, Snap burns cash to stay in business. However, Snap claimed to have $246.64 million in cash and equivalents and $963.09 million in short term investments on 31 March 2019. Therefore, Snap claimed to have $1.208.75 billion in liquid assets at the end of March.

Given those circumstances, Snap can stay in business by borrowing against that money. Yet there is no sign, any of Snap’s social media properties are making money.

Snap vs. Facebook

I regard Snap as the opposite of Facebook (NASDAQ: FB). Facebook generates vast amounts of money from its social media properties.

Impressively, Facebook recorded a gross profit of $12.261 billion, an operating income of $3.317 billion, and a net income of $2.429 billion on 31 March 2019. Facebook also reported a quarterly operating cash flow of $9.308 billion; and a free cash flow of $5.471 billion, on the same day.

Thus it is easy to see why Facebook shareholders voted to keep Mark Zuckerberg on the job at their 30 May 2019 annual meeting. Zuckerberg gave shareholders $45.243 billion reasons to keep him. The company had $45.243 billion in cash and short-term investments on 31 March 2019.

Consequently, there is no contest between Facebook and Snap. I think Facebook is a good stock that Mr. Market accurately priced at $177.83 on 31 May 2019. Conversely, I think Snap is junk that Mr. Market overpriced at $11.89 a share on the same day.

Is Snap Worthless?

Notably, the losses at Snap indicate the company’s APRU number could be worthless.

Additionally, Snap’s user base is questionable because it is full of Americans and Europeans under 34, the so-called Millennials. There are statistics that show Millennials have less money than other age groups.

Specifically, Americans Millennials could earn 20% less than their parents, a group called Young Individuals claims. Plus, Pew Research estimates income for Millennials without a college degree has declined in recent years.

Is Snapchat Marketing to People with no Money?

 On the other hand, Pew estimates incomes for Millennials with college degrees are increasing. Conversely, Millennials owe a large percentage of $1.56 trillion in student loan debt, Student Loan Hero estimates Americans have accumulated.

In fact, 69% of American college students now take out college loans, Student Loan Hero calculates. Furthermore, Student Loan Hero claims the average millennial graduates from college owing $29,800 in student loans.

Under these circumstances, Snap could market to people with no money. It’s supposedly valuable demographic has no cash to buy anything with.

Thus, Zuckerberg is having the last laugh on the all the people who make fun of Facebook because mom and grandmother use it. Mom and grandmother are more likely to have full bank accounts than the trendy millennials.

Advertisers and marketers are unlikely to pay for access to Snapchat given some of these numbers. So I have to wonder what value a social media company that targets the broke twenty-something demographic has?

Stay away from Snap

Given this data, I advise investors to stay away from Snap. In fact, the only way I can see Snap making money is to sell the company to a larger business like Facebook or Microsoft (NYSE: MSFT).

Predictably, Snap (NYSE: SNAP) pays no dividend and I don’t expect that to change soon. There is no value at Snap only a questionable social network that makes no money. Investors need to stay away from this company.