Morning Report: Snap follows other recent unicorn IPOs into negative territory. Here’s how expensive its shares stack next to its market peers.
Snap’s stock dropped today after one of its underwriters downgraded shares in the social company, lowering their share-price target from $28 to $16. Snap, which went public for $17, is now worth just $16, off $0.99 today or 5.8 percent.
Of course, Snap isn’t our only recent stumbling unicorn. Tintri had to give up its unicorn status when going public and has fallen beneath its delayed-and-lowered IPO price. Blue Apron had to dramatically reprice itself to get out the door, and since the repricing, its IPO has fallen by nearly 25 percent. With Snap, you have a consumer goods unicorn, a social app unicorn, and an enterprise cloud unicorn all in trouble at the same time.
But despite Snap instantly falling to that new $16 guidance, the company has quite a lot of proving to do. Snap’s equity is worth more per dollar of revenue than Twitter and Facebook, because it is growing more quickly on a percentage basis.
How much of a premium that fact commands, however, is worth noting. Even after its recent declines, Snap is quite expensive. Using some trailing metrics from Yahoo Finance, here’s Snap, Facebook, and Twitter’s current price/sales multiples:
- $SNAP: 36.63
- $FB: 14.75
- $TWTR: 5.42
Ah, I can hear you saying: “This might make some sense! Snap isn’t even three times as expensive as Facebook, by this metric. And it’s growing so much more quickly! That can add up.”
Maybe, but bear in mind that Facebook is intensely profitable — and was before its IPO, mind — and has shown an ability to continue accreting users to its platform while far older than Snap. So the comparison is a bit lacking, especially in the wake of Snap’s lackluster Q1 user gains.
And that’s why we included Twitter. Twitter’s price/sales multiple is what happens to a social company that stalls out, but does so at a decent userbase and firm place in the global media landscape. But if you reprice Snap using Twitter’s multiple, you end up with a much smaller Snap. That wouldn’t be fair either, given the differing revenue growth patterns from each, but you get the point.
Snap is having the sort of day that many didn’t think it would ever have, let alone so quickly. And it isn’t alone among unicorns. That’s about as bad news as can be for those in favor of more startup liquidity.
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