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Comment by paxys | Hacker News Reader

Snap's journey has been such a rollercoaster.

Facebook offered $4B for the tiny photo sharing app back in 2013, and people were calling Evan Spiegel crazy for turning it down.

By mid 2016 the company was worth $20B in private markets, and Evan was a genius.

Google then offered to buy it for $30B, and was turned down as well. Evan was crazy again.

Snap IPO'd at a $25B market cap in early 2017, fell to $6B in a couple years, and then rose to ~$130 billion in late 2021, right before the tech downturn.

Today the company is worth $13B after its latest earnings report.

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> rose to ~$130 billion in late 2021

24 September 2021 [1]. Wow, I missed that.

[1] https://ycharts.com/companies/SNAP/market_cap

And yet it's still valued at 4x sales with ~0% revenue growth and unprofitable

Look through time. Revenue growth has been solid. Ad market is a little wonky right now. FB gets over $30 per user per year, Snap at $10. Within 24 months could go up to $15, could be 500m users, 7.5 bill of revenue and they could easily reign in that cost structure and make a couple bill of net income.

And I can invest today in companies yielding 15-20% on cash flow multiples and more certain outlooks.

So why would I ever bank my money on Snap's growth continuing when that uncertain growth is already priced in?

Many tech stocks have been supported by "dreams" alone for years, never the fundamentals. Reality is setting in and multiples will be much, much lower.

It might be worth buying at ~2x sales, or if they cut costs aggressively and drive some profitability from their revenue

Which companies are yielding 15-20% on FCF with reasonably certain outlooks?

Nobody suggested you should.

What are the best examples of public tech companies have been supported by dreams alone for years?

It's already down to 3x rev after today's plunge, ~$13.5B and like I said they can cut from that cost structure and get ARPU up a bit here soon and they'll be cheaper than 2x rev and maybe single digit earnings multiple too.

Many many companies that were trading around 3-10x PE a week ago.

CTO and PINE are two REITs that were trading at 7x forward AFFO. Double digit projected growth in FFO/share. Implies ~15% yield plus growth.

NLCP trading at 60% of book value with 11% div yield and 0 debt, with double digit dividend growth rate. Many others. CWH, 10% dividend and PE of 4, implies over 15% yield.

VZ and T trading around 5 PE, implies 20% yield. Could list many more, but you get the idea.

As to the dream stocks, every company with 10x sales and no profitability... or essentially every tech co a year ago.

Despite a huge decline, NVDA still has a forward PE of 67 implying a ~1.5% yield, declining earnings YoY, when the 10y treasury yields 4.2% risk free. Or you can use a fwd FCF of 40 which implies a 2.5% yield... same result. It will easily fall another 50% from here in a recession scenario. Just one example

And yet despite the horrible numbers for many of these companies, and the huge bargains on less flashy ones, you have people choosing to invest at these absurd valuations. Seem they're learning the importance of fundamentals now

Maybe I'm looking at PINE wrong - it looks to me that it's doing FFO of around $1.60 per year and traded down to $15 odd. That's 9x, or 11% yield, not 15%. Despite my pedantry, it does look interesting.

CTO I can't figure out, I'll take your word.

The telco sector isn't looking great - VZ just posted down 23% and was already at 7x, not 5. So whatever multiple it looked to be trading at it isn't right now and the outlook is far from certain.

Google, Microsoft, Amazon, Apple were dream stocks once upon a time. All the really big outcomes once looked expensive. The business fundamentals eventually showed up in their financials - they were in a great competitive situation in a soon to be gigantic market. People who missed it had to learn the importance of business fundamentals and that financial statement analysis isn't sufficient.

There were some ridiculous prices for a lot of tech names during the pandemic, I'll grant that.

The thing with tech names is that you have to sort out the good from the not so good. Painting them all with the same brush will result in leaving money on the table either way. Everything trading at 10x sales isn't exciting and everything trading at 10x sales isn't at an absurd valuation. You have to actually do the work to understand the business and the market they are in.

The reason why VZ and T trade so low in value is because the teleco industry is a commodity. Look at any other commodity stock, they all trade at low PE ratios with high yields.

There is no growth or innovation coming out of the teleco industry. VZ and T price are both flat since the introduction of the iPhone while if you bought Apple at 5x the PE ratio of VZ when the iPhone released you would have a nice return of nearly ~4000%

In the end using PE ratios and yields to say a company is cheap or expensive is pretty useless without look at the industry they compete in. Don't compare value of companies across two very different industries as well.

>Snap at $10

When was that true? Snap currently makes about $3 per user. You can't be talking about US users, because there are only 330 million people in the US.

Just do the math taking their users and revenue, it's a little over 10. Maybe the $3 you had in your head was qtrly.

I used their "Global Average Revenue Per User (ARPU)" value, page 9 of the pdf.

Yup, that's per qtr

Eh, my bad!

I saw stories on the google offer a few years ago. They had/have failed again and again at building their own social app so understandable they want to buy something. But Snap does not worth it due to a ton of NSFW-ish content. Does google need that headache? Seems bad fit.

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