Loop Capital analyst Rob Sanderson said in a note to clients that signs of strong revenue momentum were leading him to beleive that social media tech company Snap Inc (NYSE: SNAP) Snap Inc. could achieve a market cap of $200 billion in five years. Snap’s valuation is currently at $60.5 billion.
Sanderson theorizes that if Snap follows a similar monetization model that Facebook (FB) did in its early days as a public company, its revenue could jump to $19 billion by 2027 from the $2.5 billion this year, MarketWatch reported Thursday.
Sanderson’s valuation model reflects his assumed growth in Snap’s North American user base to 107 million from 90 million, while also nearly doubling the company’s international user base to 306 million from 159 million. Sanderson adds that the higher numbers could generate $25 billion in advertising revenue by 2027.
The analyst also expects Snap to be able to become more profitable as it adds resources at an incremental rate. He notes that while Alphabet Inc
(GOOGL, GOOG) and Snap have similarities when it comes to their gross margin profiles, the latter is “all organic and more comparable to Facebook” and it doesn’t have to bear traffic-acquisition costs.
Sanderson argues also in favor of the Santa Monica, Calif.-based company achieving greater leverage, given its costs, he says, are mostly infrastructure-related payments made to its cloud-service providers.
“At a 25x forward [price-to-earnings multiple], this illustration would suggest that a +$200 billion market cap may be achievable for Snap in the 2026 timeframe,” Sanderson wrote.
Loop Capital boosted its price target to $49 from $27 on Snap shares, while also boosting the company’s assumed 2021 expected sales multiple to 15x from 13x prior.
SNAP Price Action
Snap was last changing hands at $42,49, up about 0.42% on the day. In the year to date, the stock has climbed more than 158%. Ticker currently trades at 303 times forward 12-month EPS estimates, which marks a massive premium compared to the S&P’s 31.24 times average.