Should you buy Snapchat stock? 2 minute analysis

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Snapchat just reported second quarter earnings that disappointed the market and the shares tanked 25% in after hours trading.

Based on the after hours share price of $8 that means Snapchat now has a market cap of 13.6 billion dollars. With 4.4 billion of cash on the balance sheet (including 2.5 billion marketable securities) and 3.7 billion in debt that means the enterprise value is roughly 12.9 billion dollars.

Over the last 12 months the company has made 4.6 billion dollars in revenue, 471 million in adjusted ebitda and 138 million in free cash flow. However, stock based compensation was over a billion dollars, add that back and net income was -1.1 billion dollars over the last 12 months.

That means the company is currently valued around 2.8 times revenue, 27 times adjusted ebitda and 94 times free cash flow.

In their latest earnings report, Snapchat made some promising remarks. Daily active users of the app increased 19% year on year to 363 million. And total revenue increased 6%. The company also announced a $500 million share buyback plan.

However, the growth in users came mainly from overseas and the average revenue per user dropped 11% to $3.11. Combined with a 25% increase in costs and expenses the company reported a much wider loss of 360 million in the third quarter compared to 2021. They also reported a 64% drop in free cash flow to 18 million.

Furthermore, that 6% increase in revenue represents the slowest quarterly growth in the company’s history. And to top things off, management failed to provide any guidance for the fourth quarter due to the uncertain economic environment.

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Overall, Snapchat has done well to increase its users. It’s developed many new features for the app and its trying to improve its product.

But the company is up against huge competition from the likes of TikTok, Youtube, Instagram and others.

Snapchat has been spending more on marketing and development to drive growth but it’s just not working. Meanwhile advertising rates are coming down because of the economy and that is sending snapchat further into the red.

At 94 times free cash flow, with huge competition, this is a stock to avoid.

But these are my personal opinions, not financial advice. For more detailed analysis visit our website.