SNAPchat: The greatest investment in the stock market at $17.15
Due to the timeliness of the share price this afternoon, we're going to make this fast, and then we promise to write more about SNAP in the VERY near future. But our conclusion is based on owning SNAP for the next 5-8 years, and our price target is around $300 per share. Today, SNAP returned to its IPO price of $17.00, which gives it a market cap of just under $25 billion. For reference, since most of you know crypto better than stocks, that values Snap (formerly known as Snapchat) at below the value of Ripple and JUST north of the current value of BitcoinCash (BCH, $20 billion) and double the value of Litecoin ($11 billion). We think nothing of Ripple, and very little of Litecoin (especially if bitcoin ever gets Lightning Network to work out), but those are just comparisons for reference. Do you get more out of Snap's iPhone app than you get out of Ripple? Again, the answer doesn't matter, we just present it as something of interest.
This picture will come into play later in our write-up...
Here's why you can fall in love with SNAP as a stock...
1. Snap is rightfully eating Facebook's lunch
Why? bc it's a better more efficient app, communication device, and has built a much better mousetrap than > $500 billion Facebook. (by the way, if SNAP ever achieved Facebook's valuation, it would need to trade for $344 per share. Using earnings and revenue growth alone, not counting Facebook's obvious problems, we don't even think Facebook is very expensive stock when compared to an Amazon or a Netflix. SNAP has been oft compared to Facebook lately, by the hamstrung press, and the press has focused on Instagram's faster DAU (Daily Active Users) growth since they copied Snap's "Stories" feature. But this is where statistics lie, and can lead to opportunity. Instagram DID attract a LOT of 25-40 year olds to their platform, and some of those users were those who gave the hot new Snapchat a try. 25-40 year olds are people who grew up with Facebook, and the lower half of that age range are those who switched to Instagram the second they embarrasingly realized one of their Facebook posts was read by their grandmother and mother. FINSTAgram was born! These Instagram converts (25yrs old to 35 years old) took the time to create secret Instagram accounts just for their friends, so when Snapchat came out with a better mousetrap they gave it a try bc Snap understood the privacy angle from the getgo and was built from the ground up on this "Finstagram" concept. But many of them didn't like Snap, bc it wasn't pre-populated with their friends, as most of their friends (especially the older ones) were all on Instagram and not really budging. So after many many "influencers" found Instagram to be a better platform, they switched back from Snap to Instagram and didn't look back (much). Additionally, Zuckerberg went to GREAT lengths to embarras Snap by selling his Instagram product to all his Facebook users (and then additionally badgered Facebook users with mindless email reminders to check back onto Facebook to realize "Facebook anniversaries(!YEY!)" posts Facebook had just made up out of thin air, or tell you that somebody you barely know posted something. Facebook burned a LOT of goodwill last summer, believe us, we've talked to many people unhappy with the pestering reminders from Facebook to check their app only to find nothing. But for those < 25 years old, Snap was the ONLY game in town-- literally EVERYONE they know was on the platform and most of them don't even HAVE Facebook accounts ("Facebook is for old people").
But for those of you who remember when Chrome browser had almost no market share (vs Internet Explorer) or when gmail was invite-only (2004) and Outlook was dominant, or when iPhones were trying desperately to sell 20 million units (2007), you know that selling the young your product is the #1 factor in gaining long term market share. If you can get the young to like your product, you're golden for a VERY long time. Will Snap ever convince octogenarians to get a Snap app on their iphones? Maybe. But not now. For now, Snap just needs to continue grabbing 26 year olds and 34 year olds, and then 40 year olds.... We're not recommending you buy SNAP for a day or a month, we're talking about socking away shares at $17 in the hopes that becomes $300 in 8 years (market willing). PATIENCE! Snap's growth only SEEMS limited, but you have to remember that up until this newest UI change (user interface) which has caused today's stock price to drop back to the $17.00 IPO price from $20.75 a week ago, Snap ONLY appealed to those on the age margin of their strong 12-25 year old base of users. So a 26 year old would know a LOT of friends on Snap, thus if he opened the app for the first time he'd see a LOT of activity. Know what happens when a 45 year old opens Snap for first time? CRICKETS. So Snap's DAU growth in this light is actually VERY impressive, as they are capturing every quarter a HUGE amount of new users from a VERY small pool of users who would be interested in the platform (25-35 year olds).
When you shorten the TAM (total addressable market) for SNAP's targetable user base, which is mostly North American, their growth is actually gargantuan. In a future article we'll talk about why Snap restricted themselves to JUST North America up until recent times.
What you need to know, tho, to get excited about SNAP stock right now, is that all the comparisons of Snap to Facebook in the media are wrong (future article, we'll talk about why the media is so against Snap and so FOR Zuckerberg); this is because the media and almost all stock-jockeys compare a 7 year old Snap (at time Snap's IPO in early 2017) to a 9 year old Facebook (at time of IPO). Two years makes a HUGE difference between companies starting from zero. Furthermore, Facebook grew into a "green fields" market where no real social network existed before, whereas Snap has had to literally rip customers away from a well-honed Facebook machine. So while Snap has had a tougher growth proposition, it STILL is outgrowing a similarly-aged Facebook-- which is amazing, and telling. Young people are using Snap mostly for their social networking, and there are great reasons for this which we'll explain in the next article. But suffice it to say, the Kid's know what they are doing (despite everyone in the media calling them "Millenials" in a very derogatory way), and understand that Snap is more efficient, more private, and a much HAPPIER app than Facebook or Instagram (ever get TIRED of all the nonsensical political freaks on Facebook, or the dweebs you never liked in High School posting 50 things for ever post created by someone you actually like?). Snap usage is a HAPPY experience, bc the only people ON Snap are your close friends, AND they (bc of the privacy adherence) can post personal content they couldn't post to public forums (like Facebook and Instagram and Twitter). This is why young people's Daily Avg Time spent on Snap blows away Facebook (who embarrasingly won't even post their numbers anymore) and even Instagram.
As of the past two quarters, after realizing Instagram couldn't match Snap's usage times, Instagram quickly stopped revealing time-on-app. THIS is how you know Snap is eating Instagram's lunch, where it counts, with the young.
2. Mark May and Kylie Jenner are wrong
The reason we're writing that you take advantage of SNAP's most recent retest of it's IPO price at $17.00, is due to some catalysts which occured this week from parties who don't understand stocks but have heavily affected the stock price.
First, Mark May posted a "sell rating" on SNAP bc he's been watching Tweeted complaints from Snap users about a recent change to the app's UI (user-interface). We'll get into the UI change in the next article, but we point you quickly to Facebook's adoption of the "timeline" UI change from back in 2006. We point you to THIS article which should REALLY ring a bell if you're following the latest "revolt" by Snap users this week...
https://techcrunch.com/2006/09/06/facebook-users-revolt-facebook-replies/
Do you remember that? We do. Facebook could be bought in 2006 on a private market back then, and it would have been one of the greatest investments of any stock-jockey's lifetime. Facebook stock wouldn't take a breather after that little fiasco until it's IPO in 2012 when naysayers said it didn't have any way of "MONETIZING" it's users. Funny, that was the rallying call on Snap until just this last month when Snap posted astounding growth in revenues and users which rallied the stock from $14 to $20.
Mark May has a history of not getting his stock picks correct on Snap (and also on Roku which he recommended as a short term buy right before earnings this week); we've compiled his history on the company and it's not good (for Mark):
March 27, 2017: $23 per share
Mark May says SNAP is a buy all the way up to $27 where he said it will hit in the next 12 months.
Cantor Fitz & Pivotal Research say SNAP is a sell, same day.
May 11, 2017: $18 per share
With SNAP shares down massively after their first quarterly report, May reiterated his buy recommendation. Target price = $24. Whoops.
June 9, 2017: $17 per share
Mark May downgrades SNAP to NEUTRAL, says he's scared of the post-IPO shares unlock.
Price target = $20. So Mark still isn't bearish, he's just not bullish anymore.
July 12, 2017: $15 per share
CNBC writes "How Zuckerberg used Instagram to crush Evan Spiegel's Snap"
Whoops.
August 10, 2017: $12 per share
Drexel Hamilton "Buy" with $30 price target (along with Jeffries).
Cantor Fitzgerald upgrades SNAP to overweight from neutral-- valuation now attractive.
Mark May? neutral rating. probably lowered his price target again.
Feb 20, 2017: $20 per share (you can't make this stuff up in fiction!)
Mark May downgrades Snap to sell.
full cycle buddy, you've been wrong the entire way now, every single call, wrong.
Which brings us to Ms. Jenner. Look, she's a VERY popular reality-TV star, so she gets a pass regardless of whether we like her popularity or not (we're not fans). Like her or hate her, she's huge right now, and her negative tweet about SNAP DID IN FACT move the stock down 8% today (and counting, we're writing this so SNAP might be $16 by now or back to $20). But the fact is, she admitted afterwards she loves Snap. So is she still using it after this supposed awful UI change? We don't know. What we DO know is, the alternatives aren't there if she and her generation wants to switch away. Well, they are there, but they just aren't attractive. So while they can boycott for a little while, the little red REMINDER icon on their snap icon on the front page of their iPhone continues to have it's number go up. These users won't be tempted to peek? We'll bet against that all day. Snap is fun, it's your friends reaching out to you. It's like getting mad that you got REALLY efficient at rotary dialing, and then AT&T magically changed everyone and forced them into push-button dialing in 1985, and suddenly a 19 year old girl isn't going to wanna use the phone anymore??!!?? WE... DON'T..... THINK SO.
Kyrie Irving, Kylie Jenner, whomever, they may not like the UI change, at first, but GOOD well-thought algos which are actually trying to HELP them become more efficient with their time, will win the day.
Due to the volatility of the stock today, we're going to keep this short, and tell you how great and motivating Snap's most recent quarter was, and how much better it's going to get the rest of 2018. How do we know this? We've seen how ad auctions work, with Google and Facebook, bc we're THAT old. We're old enough to know that young people know best, even when we older folk think they are jackasses. Sometimes they just know, and technology and new ways of doing things have always pissed off adults and pleased the young. ...and sometimes, the young grow older, and don't change their habits, and a company who serves them well and values their privacy and time, not only causes them to stick around as they age, but even allows them to let their PARENTS AND GRANDPARENTS on the app without being embarrassed and needing to move the next "Woo Woo".
Snap(chat) will solve the Woo Woo Problem of social networks, it will emerge the winner in communications, and the stock will go much much higher. We'll watch closely, in case we've missed something, but we didn't miss Apple (for very long, we bought in mid 2004 and still own), Google (got it on the IPO which was a VERY unpopular IPO), Amazon (we bought in early 2001, and then were convinced to sell it for a small profit even tho we nailed the long term theory), Paypal (we owned it BEFORE the unfortunate ebay acquisition), Expedia (we got taken out by Diller, and then Priceline snuck away with the long term prize), we bought our first shares of Facebook below $20 per share after the IPO when Wall St said they couldn't monetize their users bc of the great Zynga fiasco that year, and we just missed on Netflix bc Carl Icahn's son bought every share about $15 above our target price. What we're telling you is, we rarely miss an opportunity on the next great thing, and Snap is a great thing. It's a tremendously efficient app, both for users AND for advertisers, it's a feel-good product which will earn the love of all who come to use it, and it's CEO is a brave (but probably very greedy) leader who hasn't been afraid to take a near-term beating to do the right long-term thing.
We'll write more on SNAP, and we hope you have ways to hedge against the massive risk which is the bloated bubbly stock market overall, but in a flat stock market SNAP is going to be the best stock to own in the coming years. Take a bite, and then try to ignore it for awhile. We recommend a 20% AUM position, which is very large, but we're mostly cash with the rest of our portfolio, so 25% isn't that big in that respect. SNAP will be our ticket to participate in the stock bubble madness in the near future, and we'll only get more bullish if the world economny takes a digger and brings the stock price downward along with all the others.