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The Twitter Deal May Be on Hold But Snap Is Still Worth a Look

The acquisition multiple gives us a rough idea of a buyout price for Snap (SNAP) stock
Elon Musk is acquiring Twitter
This gives a favorable floor price with plenty of upside potential
Source: Ink Drop / Shutterstock.com
Snap (NASDAQ:SNAP) see…

  • The acquisition multiple gives us a rough idea of a buyout price for Snap (SNAP) stock
  • Elon Musk is acquiring Twitter
  • This gives a favorable floor price with plenty of upside potential

Source: Ink Drop / Shutterstock.com

Snap (NASDAQ:SNAP) seems to be old news and out of fashion. Right now TikTok is the new kid on the block grabbing all the headlines and attention. Meta’s (NASDAQ:FB) and Instagram, on the other hand, are the more veteran platforms with massive user bases.

It leaves me to wonder where Snap will fit in this landscape. Granted investors are only asking this question now given the precarious macroeconomic environment. When the market was hot in 2020/ 2021, from peak to top, SNAP stock was nearly 8x in value.

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This is the environment we find ourselves in. Valuation matters and growth stocks will be looked at with a fair bit more scrutiny. One shining light though, is that Elon Musk’s buyout of Twitter (NASDAQ:TWTR) shows that there is still a lot of value in these older platforms.

SNAP
Snap
$12.79

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Twitter’s Valuation a Clue

As you may know, the world’s richest man is buying Twitter for $54.20 a share. This is roughly a 38% premium of TWTR’s stock price prior to the deal being announced. This values the sometimes profitable/sporadic growth company at around $44 billion.

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Now I don’t know how Musk came up with the $44 billion valuation. This calculation was never really disclosed. In fact, the way that it unfolded made it seem that Musk just wanted “4:20” in the acquisition price thereby landing at a share price of $54.20. Musk does enjoy trolling everyone and keeping things on edge.

The acquisition price translates to roughly 8.7x sales given Twitter’s annual revenue of $5.07 billion in 2021. The social media’s status as a “town square” sets this as a sort of floor for its valuation

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SNAP stock’s Valuation

Given that Snap is a faster-growing company, I think it is fair to assume that it can attain that valuation multiple as well. Note though that this type of multiple is only possible under more “normal” market conditions. The current environment that we are in has a lot of fear, uncertainty, and doubt. This will crush valuations of stock prices and SNAP should be no exception.

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I am making the broad assumption that these difficult conditions too will pass. Snap had $4.1 billion in revenue in 2021. Applying an 8.7x multiple on SNAP stock gives it a value of roughly $35.7 billion.

It’s not too far off from SNAP stock’s current valuation. I think of this as a floor to SNAP stock’s value. At its current price of $12.79, SNAP stock has a market capitalization of $20.9 billion.

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In Conclusion

I think an investment in SNAP stock is safer than it seems. High growth stocks have been smashed lately and SNAP stock could fall further. But Musk’s Twitter acquisition gives us a valuation framework of a possible floor for SNAP stock to fall back on.

Possible upside remains given the company’s growth plans for 2022 and beyond. Most Wall Street analysts have target prices for SNAP stock well above the current price. The website TipRanks gathered price targets from 25 analysts who gave a forecast range of a low of $35 and a high of $88. Wall Street has an average price target of $48 for SNAP stock.

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Given these dynamics, I believe that SNAP stock is worth a look. Especially for risk-seeking investors with long-time horizons.

On the date of publication, Joseph Nograles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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