Michael Nathanson, senior research analyst at MoffettNathanson, described Snap as a “field of dreams.” Even with rosy growth forecasts, “at $22
billion, we’re looking at a stock trading at five to eight times estimated revenues in 2020,” he said before the valuation rose even higher.
“They would need to grow for the next 10 years at more than 50 percent every year with a profit margin of 25 percent, which is extremely high given
that they are now losing money rapidly.” He noted that very few companies had achieved such growth rates in the history of American business.
“I’m concerned that investors will have to wait a very long time, if ever, before they see any meaningful appreciation.”
About the best Mr. Nathanson and Mr. Gold could come up with: Snap’s valuation isn’t “patently crazy.”
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How a Money-Losing Snap Could Be Worth So Much -
Testing the upper limits of valuation, Snap’s investors are betting on the kind of rapid growth that few, if any, companies have ever achieved.
“It’s not about economics.”
But Snapchat’s growth slowed sharply in last year’s fourth quarter — just about the time Instagram started
its own version of Stories, a popular Snapchat feature where users post a sequence of photos or videos.
The Snapchat story “is all about growth,” Mr. Nathanson said.
The sky’s the limit and history is not a guide.”
To justify Snap’s valuation, “you have to make some very lofty assumptions,” Mr. Hamilton said.