Yahoo Finance Is Snap Inc (NYSE:SNAP) Worth $12.73 Based On Intrinsic Value?
In this article I am going to calculate the intrinsic value of Snap Inc (NYSE:SNAP) using the discounted cash flows (DCF) model. Anyone interested in learning a bit more about intrinsic value should have a read of the Simply Wall St analysis model. If you are reading this after June 2018 then I highly recommend you check out the latest calculation for Snap here.
Is SNAP fairly valued?
We are going to use a two-stage DCF model, which, as the name states, takes into account two stages of growth. The first stage is generally a higher growth period which levels off heading towards the terminal value, captured in the second ‘steady growth’ period. Firstly, I use the analyst consensus estimates of SNAP’s levered free cash flow (FCF) over the next five years and discounted these figures at the cost of equity of 9.48%. This resulted in a present value of 5-year cash flow of -US$330.06M. Want to know how I arrived at this number? Read our detailed analysis here.
The infographic above illustrates how SNAP’s top and bottom lines are expected to move going forward, which should give you some color on SNAP’s outlook. Secondly, I calculate the terminal value, which accounts for all the future cash flows after the five years. I think it’s suitable to use the 10-year government bond rate of 2.8% as the stable growth rate, which is rightly below GDP growth, but more towards the conservative side. Discounting the terminal value back five years gives us a present value of US$11.46B.
The total value is the sum of cash flows for the next five years and the discounted terminal value, which results in the Total Equity Value, which in this case is US$11.13B. The last step is to then divide the equity value by the number of shares outstanding. This results in an intrinsic value of $8.84, which, compared to the current share price of $12.73, we see that Snap is quite expensive and not available at a discount at this time.
Next Steps:
Although the valuation of a company is important, it shouldn’t be the only metric you look at when researching a company. What is the reason for the share price to differ from the intrinsic value? For SNAP, I’ve put together three pertinent factors you should look at:
Financial Health: Does SNAP have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
Future Earnings: How does SNAP’s growth rate compare to its peers and the wider market? Dig deeper into the analyst consensus number for the upcoming years by interacting with our free analyst growth expectation chart.
Other High Quality Alternatives: Are there other high quality stocks you could be holding instead of SNAP? Explore our interactive list of high quality stocks to get an idea of what else is out there you may be missing!
PS. Simply Wall St does a DCF calculation for every US stock every 6 hours, so if you want to find the intrinsic value of any other stock just search here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
