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.
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.
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