Skip to Content
Stock Analyst Update

Snap Shows Surprising Strength; Shares Fairly Valued

We’re increasing our fair value for Snap, but don’t see the no-moat firm as attractively priced today.

Mentioned:

 Snap (SNAP) finally reported a strong quarter as a public company as revenue and the operating loss for the quarter beat both our internal estimate and consensus.While the firm’s daily average user count grew at only a single-digit rate sequentially, it was somewhat of an improvement from last quarter. Plus, Snap demonstrated its ability to further monetize its users, although we note that fourth quarter is usually a seasonally stronger quarter. 

With some improvement in user growth and further automation of sales of Snap ads, we think the firm is slowly making headway toward providing a scalable and easily measurable platform. However, given Snap’s continuing difficulty to further accelerate user growth, we remain convinced the firm lacks a network effect moat source.

After assuming a slightly faster gross margin expansion and rolling our model forward, we increased our valuation on Snap to $16 per share from $14. Snap shares began trading up around 20% in after-hour trading due to the surprisingly good fourth-quarter results. At current levels, we continue to view this no-moat and very high uncertainty name as fairly valued.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Ali Mogharabi does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.