Potential investors should ask whether it is logical to value the smaller, faster growing but not yet profitable SNAP more than the larger, slower growing and profitable TWTR. Since equity valuation is ultimately a discounted cash flow equation, the question becomes which company will earn more in the years to come, not what company has earned more in years past. According to Koyfin aggregated analyst targets, TWTR is forecasted to finish out 2019 with $3.45B in sales and $1.23B in EBTIDA; SNAP is forecasted to finish 2019 with $1.72B in sales and -$223M in EBITDA. For 2020 and 2021, TWTR is forecasted to have 14% and 13% revenue growth respectively, while SNAP is forecasted to have 37% and 31% revenue growth respectively.4 But even after those two projected years of growth, SNAP would still have revenue in 2021 that is less than what TWTR is projected to have in 2019.
Further doubt was cast on SNAP with the behemoth in social media, Facebook Inc. (which owns Facebook, Instagram & WhatsApp), copying one of SNAP’s core features back in 2018, “Snapchat Stories.”3 While SNAP has continued to grow in spite of this Zuckerberg attack, the lesson from the event did not go unheard. In my view, that event showcased that SNAP does not have a moat. Facebook can and has stolen SNAP’s features and that has placed a lot of doubt in my mind whether SNAP will survive in years to come, let alone grow at the rate analysts are forecasting. Recall Snapchat has only been in existence since 2011, Twitter launched in 2006 and Facebook was founded back in 2004. I don’t believe the staying power of SNAP has been established yet, nor do I think the valuation makes sense compared to TWTR which is why as of the writing of this post, I am long TWTR and short SNAP.
Disclosure: I am long FB & TWTR and short SNAP as of 1/22/2019.
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