Analyst Sees Snap Hitting $200B Valuation By 2025

An analyst has said that Snap Inc SNAP could achieve a valuation of $200 billion in five years.

What Happened: Loop Capital’s markets analyst Rob Sanderson theorizes that if Snap’s monetization were to charter the same course in terms of monetization that Facebook Inc FB did in its early days as a public company, it’s revenue could grow to $19 billion by 2027 from the $2.5 billion in 2020, MarketWatch reported Thursday.

If Snap were to grow its North American user base to 107 million from 90 million and double its international user base to 306 million from 159 million, the messaging company could generate $25 billion in advertising revenue by 2027, according to Sanderson.

Sanderson upped his price target for Snap to $49 from $27, noted MarketWatch. The company’s shares have risen 159% on a year-to-date basis.

Why It Matters: The analyst pointed out that while Alphabet Inc GOOGL GOOG subsidiary Google and Snap shared similarities related to a gross margin profile, the latter had to bear traffic-acquisition costs, Snap is “all organic and more comparable to Facebook.”

The costs that burden Snap are mostly infrastructure-related payments made to its cloud-service providers and this leads Sanderson to assume that it has the potential to garner leverage as it grows.

“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,” as per Sanderson.

The analyst theorizes that if Snap continues to deliver monetization expansion and keeps on delivering on the user growth front investors “will believe in earnings power scenarios such as this and the stock will carry a high multiple of sales.”

On Thursday, Snap acquired music and songwriting app Voisey for an undisclosed amount. Voisey is valued at $3 million, according to Pitchbook, reported Business Insider. 

Voisey has a similar look and feel to ByteDance-owned TikTok, a short-form video application.

Price Action: Snap shares rose nearly 4.1% to $42.29 on Thursday and gained 0.71% in the after-hours session.