Snap 📸

For those of us that remember the bright future promised by Vine, Snapchat was an interesting new addition to our lives that filled a void for short micro clips of video content.

While Snapchat for a while dominated the micro video landscape, they have an ongoing battle with Instagram, who appeal to the same target and have been matching and enhancing on Snap’s product features.

The platform is very much for the young adults and teen market, which also explains some of the innovation and growth attempts they have made in the past.

Needless to say we aren’t all wearing Spectacles by Snapchat.

Why are we talking about Snap now? Well they are loading up on debt and boosting the amount of cash on hand they have, and that means we need to understand what this means for the long term investors.

It’s worth mentioned that in our poll eight months ago, Snap was the firm most Genuine Impact users thought would be the next big tech failure.

Looking at the last six months of share price data the stock hasn’t done anything particularly interesting or ground breaking. It hasn’t really crashed (aside from the general pandemic dip) but it hasn’t experienced any standout moments either.

Let’s see what the shield says.

The quality is surprisingly high, given the struggles Snap has been running into. If we dig into the sub factors we get a better picture. The profitability and capital allocation are low and poor respectively. They aren’t generating high profits given their expensive outgoings and attempts to win market share, and they struggle to return anything back to share holders (makes sense if you aren’t doing too well profitability wise.) What is interesting, is the financial strength is very strong. This is why Snap is raising debt now when interest rates are so low. They have sold equity rather than getting large amounts of debt. A smart tactic which goes a long way to improving their overall quality rank!

Value is very expensive. There are less than 300 companies covered in this ranking which are more expensive (relatively speaking) than Snap. That is a real achievement, they are extremely overpriced for what they produce. This stock will get no love from the Value investors, if anything this will be a big warning sign to most.

I was disappointed to see the Momentum is fairly weak. Often you see overpriced stock but with massively hyped up future projections which analysts are backing. That isn’t the case here. It’s over price and everyone is luke warm to freezing about their future. Seems our vote on most likely to fail has some experts backing that view. Future revenue and future earnings are both medium, and sentiment is very weak, less than 100 companies have a worse sentiment outlook than Snap. That’s a real nail in the coffin by the experts.

However, the sell/buy/hold recommendations don’t reflect this. 2% sell, 36% hold, and finally 62% to buy, with one analyst switching from hold to buy in the last 30 days. It seems these are very short term views as their longer term outlook is bleak for the firm.

What do you think? Is this priced for success? Will the additional cash result in some new innovation? Or will the shutter close on this teen sensation?