tag:blogger.com,1999:blog-8152901575140311047.post4739609180626464873..comments2024-03-18T10:18:19.736-04:00Comments on Musings on Markets: My Snap Story: Valuing Snap ahead of it's IPO!Aswath Damodaranhttp://www.blogger.com/profile/12021594649672906878noreply@blogger.comBlogger38125tag:blogger.com,1999:blog-8152901575140311047.post-47474776542562462722018-07-26T00:56:17.537-04:002018-07-26T00:56:17.537-04:00Thanks for the great post. I am not an NYU student...Thanks for the great post. I am not an NYU student and I still love these and read every one. <br /><br />Can you clarify how you calculate the share count since this is rather confusing? <br /><br />News sites report that: <br />Snap Inc, the owner of ephemeral messaging app Snapchat, sees its upcoming initial public offering (IPO) priced at between $14 and $16 per share, according to a regulatory filing released Thursday.<br /><br />This would value the company at between $19.5 billion to $22.2 billion.<br /><br />But using your share count of 1,243 and the $14-$16 price, I only get to 17.4Bn and 19.8BnNeil Dimapilishttp://www.sagesolution.com.ph/company-IPO/noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-74082610443625622252017-07-11T14:23:09.841-04:002017-07-11T14:23:09.841-04:00Dear Sir,
SNAP has seen a big drop due to IPO loc...Dear Sir,<br /><br />SNAP has seen a big drop due to IPO lockup expiry concerns, and huge amount of shares are going to be available. The lockup expiry is going to happen from July-Aug end. 1200M shares are going to be available. <br /><br />As all IPOs does during lockup expiration (FB dropped huge too), there is a huge downside during such times. I would think that SNAP can hit your original average valuation of $11. Would you be a buyer at those prices, and let us know your take on SNAP taking into account the stock dilution. <br /><br />Thank you!Sureshhttps://www.blogger.com/profile/10080721261984547126noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-50079996293211649142017-03-25T17:56:41.510-04:002017-03-25T17:56:41.510-04:00P.s. to everyone who asked about the equity value ...P.s. to everyone who asked about the equity value simulation : Professor Damodaran happened to mention in his subsequent posting / video on Valeant that he's using Oracle's "Crystal Ball" software, which is an Excel Add-In.<br /><br />Crystal Ball looks to be very handy, but isn't cheap at $1K. Here's an old YouTube demo which gives a good basic overview:<br /><br />https://www.youtube.com/watch?v=nuxuFtkmLQcBrad Stiritzhttps://www.blogger.com/profile/15421873063349646627noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-6176847964358976042017-03-08T18:19:59.064-05:002017-03-08T18:19:59.064-05:00" remain more attractive to younger users.&qu..." remain more attractive to younger users."<br />This is a very important assumption because it limits the potential growth. You might have made the same assumption about Facebook circa 2009 since young people were their main focus but they managed to become mainstream. Actually every successful consumer tech company walked the same route: young early adopters to Gen X to Boomers. Assuming that Snap will not do this same thing is actually a pretty big assumption that is not supported by the history of other successful consumer tech companies.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-88566571771876892902017-03-07T00:27:57.395-05:002017-03-07T00:27:57.395-05:00Hi Professor Damodaran,
Thank you for the insight...Hi Professor Damodaran,<br /><br />Thank you for the insightful post and for sharing your thoughts on this very interesting IPO. Thanks for mentioning your book as well ;) I see that it's already got great reviews. I'm looking forward to reading it!<br /><br />Regarding what appears to be a Monte Carlo simulation of equity value, I'm extremely intrigued and would greatly appreciate further details, please? I would love to know what platform you used to generate, and if you're possibly open to sharing your code, please?<br /><br />Thank you in advance and best wishes.Brad Stiritzhttps://www.blogger.com/profile/15421873063349646627noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-11448674121456179802017-03-04T12:25:48.033-05:002017-03-04T12:25:48.033-05:00Hi Professor Damodaran -
Thanks as always for sh...Hi Professor Damodaran - <br /><br />Thanks as always for sharing your insights.<br /><br />Do you think the voting share structure of Snap at this point is worth discounting or adding a premium? Twitter's founding leadership clearly was more fractured than SNAP, FB, or GOOG, thus they could not mimic the share structure of those peers and IPO successfully. Do you think you would almost price in a premium for the leadership structure at SNAP? (of course this could be dependent on your feelings of the leadership of the company). <br /><br />SNAP mentions Evan Spiegal 10 times in Risk Factors - FB mentions Zuck 5, and TWTR had no mentions of Dick Costolo - interesting to see which is still in control...<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-46343662360534724512017-03-04T12:25:30.602-05:002017-03-04T12:25:30.602-05:00Hi Professor Damodaran -
Thanks as always for sh...Hi Professor Damodaran - <br /><br />Thanks as always for sharing your insights.<br /><br />Do you think the voting share structure of Snap at this point is worth discounting or adding a premium? Twitter's founding leadership clearly was more fractured than SNAP, FB, or GOOG, thus they could not mimic the share structure of those peers and IPO successfully. Do you think you would almost price in a premium for the leadership structure at SNAP? (of course this could be dependent on your feelings of the leadership of the company). <br /><br />SNAP mentions Evan Spiegal 10 times in Risk Factors - FB mentions Zuck 5, and TWTR had no mentions of Dick Costolo - interesting to see which is still in control...<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-78670797233633398592017-03-03T23:35:46.378-05:002017-03-03T23:35:46.378-05:00Very nice article, professor! I am a bit curious i...Very nice article, professor! I am a bit curious if you don't mind: Is your motivation to value Snap stemming from your interest in valuing businesses in general, or were you considering investing in Snap prior to your analysis?GoKuhttps://www.blogger.com/profile/05674743004147477362noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-59559844952844584322017-03-03T09:33:18.739-05:002017-03-03T09:33:18.739-05:00Thanks for your post professor. Just to understand...Thanks for your post professor. Just to understand a bit and learn, was that a Monte Carlo simulation model you used. If yes, which software did you use? <br /><br />Lastly, how did you arrive at the appropriate distributions for each of the three inputs? <br /><br />Thanks a lot for your response and time. Look forward to hearing from you :)<br /><br />And also, thank you for your posts. I enjoy every visit to your blog.Virendra Singhhttps://www.blogger.com/profile/09030080726607162773noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-12248843902597137182017-03-03T07:30:46.096-05:002017-03-03T07:30:46.096-05:00Thanks for the great post. Just a follow up musing...Thanks for the great post. Just a follow up musing - I am too old to be a snapchat users, but it seems the USP is ephemeral nature of the media share. I see two issues - first is technical. It is technically possible to circumvent this feature by users if they really want to. There are already some apps available for screen capture. So what is the risk that some smart apps suddenly becomes popular and kills the credibility of the app - effectively adding a large left tail to the distribution. Secondly, if you assume social media with unique USPs like this works only on cohort (younger generation switch to something even more exciting) and if you app's basic appeal is to young people lacking self-control, how does that translate to future revenues. This cohort may not be the most successful (in terms of disposable income) lot of their generation.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-27721326739311359242017-03-02T00:49:25.654-05:002017-03-02T00:49:25.654-05:00I am a seasoned investor and I really liked the po...I am a seasoned investor and I really liked the post. Keep it going. It is also nice to see a reply out of your courtesy.Fan Wuhttps://www.blogger.com/profile/04737735368110906020noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-32326896792925311452017-03-01T15:07:06.811-05:002017-03-01T15:07:06.811-05:00Hello professor,
I like to perform this kind of v...Hello professor,<br /><br />I like to perform this kind of valuations (modeling and describing it) just as you do. I have a question: on average, how much do you spend on doing these analysis? I want to get a feeling of how "efficient" I am on doing this.<br /><br />Thanks!Tomnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-30768935636351624352017-02-28T11:43:11.854-05:002017-02-28T11:43:11.854-05:00Greatly inspired by your lectures and books on val...Greatly inspired by your lectures and books on valuation, being an about to graduate MS Finance student i tried to value Snap Inc. Please have a look at my blog<br /><br />http://aakashreddykunam.blogspot.com/<br /><br />It would be great if you can have a look at it and give a review of how it is and scopes for improvements. <br />Aakash Reddy Kunamhttps://www.blogger.com/profile/13081187460240509453noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-82292357484895885192017-02-25T12:41:04.290-05:002017-02-25T12:41:04.290-05:00Great post as always!
Question on revenue assumpt...Great post as always!<br /><br />Question on revenue assumptions: why do you think snap will grow at 55% first 4 years and only 2.47% from years 6-10? May have not caught on the explanation but would appreciate your insight. <br /><br />Thank you! Shubham Agarwalnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-12774041407422981472017-02-25T11:54:09.525-05:002017-02-25T11:54:09.525-05:00Thank you for this article Professor.
One question...Thank you for this article Professor.<br />One question about the 3Bn proceeds from the IPO. They are needed for the plan to be executed, so why add them to the value of equity? If the company does not manage to raise money, the financial trajectory of the company, and its cash flows, will not be the same. In other words, the result from a DCF exercise shouldn't it always be a post-money valuation? If not, what am I missing?<br />Many thanks in advance for your anwser!<br />AlexAlexnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-26088988946012044212017-02-25T08:42:41.300-05:002017-02-25T08:42:41.300-05:00Professor many thanks for another very interesting...Professor many thanks for another very interesting piece of analysis.<br />I was intrigued by your probability distribution analysis and wanted to ask if you upload the xcl files of that analysis too?<br />Is it correct to assume that you probability analysis was suitable in this case of a young company with unpredictable performance, while for mature companies the same analysis would not be warranted?<br /><br />Many thanks and looking forward to new your new posts, particularly on Valeant.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-14854623580174577922017-02-23T22:52:43.329-05:002017-02-23T22:52:43.329-05:00Hi Professor,
Do you think it's better to cap...Hi Professor,<br /><br />Do you think it's better to capitalize the fee that snapchat pays google for server space? I feel it's like rent if snapchat is a retail company. In this case, should we capitalize it as a operating lease? Amyfynoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-17637593438217621102017-02-23T21:34:05.145-05:002017-02-23T21:34:05.145-05:00Professor, thanks for posting the results of your ...Professor, thanks for posting the results of your simulation. Are you able to share the tool you used to create it? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-88254362200114917032017-02-23T15:56:28.737-05:002017-02-23T15:56:28.737-05:00Why should management automatically welcome my inp...Why should management automatically welcome my input because I have decided to invest with them? As a supplier of capital, it's not obvious why my input should be more valuable than that of a supplier of labour, say. Furthermore, one might turn the argument around: if I've decided to back a management team by investing behind them, why wouldn't I trust them to take decisions?<br /><br />My own biases on this subject are clear: I don't like management teams to have unfettered control of a company, and in one case my firm has sued a portfolio company to ensure that shareholders would be treated better than their historical experience. We pay close attention to what management are able to do or are constrained from doing in our investment processes, but if we dislike or don't trust management, shareholder protection is often of little comfort. <br /><br />Having said that, the risk of ceding influence or control to others can presumably be valued, no? And if so, should't the risk be reflected in the share price? One would certainly expect to see investor protections (or lack thereof) to be incorporated in bond prices, and that principle should hold across the capital structure. Might one expect to see one or more of a higher discount rate, a wider range of valuation outcomes, or a longer (left-hand) tail in instances where shareholders cede more (or all) control to managers?<br /><br />Gordonnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-90054976900194406542017-02-21T11:29:01.287-05:002017-02-21T11:29:01.287-05:00I tend to visualize many outcomes in the market as...I tend to visualize many outcomes in the market as being bimodal or even binary. For example, I find it quite unlikely that Snap achieves an average outcome - either it successfully converts users to revenue, or it doesn't.<br /><br />At a theoretical level, normal(ish) distributions arise from the Central Limit Theorem as the consequence of the interaction of many independent random samples.<br /><br />With this in mind, a company that participates in many diversified and independent sources of revenue will have well-behaved outcomes. A company like Snap whose success depends almost entirely on whether the business model is viable has nothing to pull it towards an average outcome.<br /><br /><br /><br />At the extreme, certain situations (FDA approvals, election results) consist of only a single event and the distribution of outcomes should just be two different prices, weighted by their probability of occurring.<br /><br />In this model your valuation is controlled almost entirely by the probability of success/failure, which seems nearly impossible to estimate without considerable domain knowledge.Ryanhttps://www.blogger.com/profile/04314718042663866972noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-89924901033117304752017-02-21T09:28:19.851-05:002017-02-21T09:28:19.851-05:00Dear Professor,
Thank you for the informative pos...Dear Professor,<br /><br />Thank you for the informative post. I am intrigued by your way to use probability distribution to estimate the key parameters. Can you write more on the topic on how to create probability distribution in excel please?<br /><br />Jackynoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-51407674354815051582017-02-21T00:36:30.059-05:002017-02-21T00:36:30.059-05:00great stuff as usual!!
Just one minor comment: A...great stuff as usual!! <br /><br />Just one minor comment: A fair assumption is that per-user the capital expenses (in terms of server cost) will continue to fall over time primarily because computer hardware costs keep falling (a GB today is far cheaper than a GB a decade back, same for bandwidth). So I think that snap is doing the right thing by outsourcing the hardware/servers and focusing on growth instead. If it becomes profitable it always has the opportunity to build out it's own data center, and that capex will also help reduce it's taxes. If user growth slows down, it just needs to pay less to the server providers today. <br /><br />To cut a long story short, I think snap has an asset light model, which is very smart and flexible. It also has the option to reinvest (eventual) profits to save on hosting costs eventually. This fact may boost the valuation to some extent at least. Shanhttps://www.blogger.com/profile/06274030595907852654noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-16610076407948870482017-02-20T05:05:53.146-05:002017-02-20T05:05:53.146-05:00Professor,
I have a question on how you computed ...Professor,<br /><br />I have a question on how you computed a sales-to-capital ratio of 2 for Facebook, which you apply in your valuation of Snap. It just happened so that a couple of days ago I computed the same ratio for Facebook and my number was about 1.0. My educated guess is that you may have deducted goodwill from the book value of invested capital. I would appreciate if you could clarify this point.<br /><br />Thanks,<br /><br />AnkitAnkitnoreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-79038694237740901482017-02-20T01:59:18.581-05:002017-02-20T01:59:18.581-05:00Dear Professor,
Thank you very much for your post...Dear Professor,<br /><br />Thank you very much for your post. My question is more general than directly related to this post. It is about the way you calculate the sales-to-capital ratio. I have noticed that sometimes is computed as sales to book value of invested capital AND sometimes as a change in sales over reinvestment (with the latter item being net capex AND net WCInv). <br />My first question, is which one of these is better to use and when? My personal guess is that the one dealing with BV, shows the sales/cap ratio of the existing assets in place, whereas the latter of the marginal one, if my wording is correct.<br />The second question is about the non-cash WC investment. There are two ways one may calculate it using either a balance sheet OR a cash flow statement. However, I notice it very often that there are differences (sometimes staggering) between the two. As such, which one approach would you personally recommend and why?<br /><br />Kind regards,<br /><br />TimTimhttps://www.blogger.com/profile/16231184752945989649noreply@blogger.comtag:blogger.com,1999:blog-8152901575140311047.post-46454954966104412722017-02-19T23:09:51.015-05:002017-02-19T23:09:51.015-05:00"After all, if you welcome me to invest me in..."After all, if you welcome me to invest me in your company and I do, you should want my input as well, right?"<br /><br />Very utopian. Really the purpose of these IPOs is for company founders, employees, and early investors to cash out, not to want public shareholder input. The purpose of public markets is to raise capital but these internet companies need very little capital, they could stay private forever. Anonymousnoreply@blogger.com