Snap may have scared some sense into its investors. The disappearing-message app, represented by a cartoon ghost, lost $25 billion of market value, the day after it said changes to Apple’s smartphone operating system were making it harder to squeeze profit from users. Revenue that missed analysts’ estimates, a slowdown in projected growth for the fourth quarter and the impact of supply chain disruptions on companies who advertise through Snapchat all conspired to knock 20 per cent off the company’s shares.
Then again, Snap was already riding high. Over the past two years, shares in Evan Spiegel’s firm have outpaced rivals Facebook and Twitter with a nearly 500 per cent increase. Taking into account Friday’s drop, Snap’s enterprise value of $94 billion represents more than 20 times revenue. Facebook, Twitter and Netflix average approximately 8 times forward revenue, according to Refinitiv. Snap did, though, at least grow its daily active user base 23 per cent in the third quarter, year-on-year, raising its tally to 306 million.
Urgent measures
If users are what really counts, Snap’s valuation doesn’t look so stretched. Each Snapchatter, based on the latest count, is worth about $300 in enterprise value. By comparison, each of Twitter’s flock represents a little more than $200 on the same metric. Twitter is also growing that flock more slowly than Snap. Compared with Facebook, Snap looks positively cheap. The 1.9 billion members that make up Mark Zuckerberg’s flagship social media network are worth 1.5 times more than a Snap user.
True, after Apple tweaked its privacy rules to make it harder for third-party apps to track and measure their ads, the theoretical value of a Snap user has fallen a little. The silver lining is that the changes haven’t impacted Snap’s audience growth or its behaviour. Users may be pleased if fewer ads are the result. Snap is better off without the rose-tinted filters.