Earnings

Critical Comparison: Snap Inc. (SNAP) vs. GoDaddy Inc. (GDDY)

Snap Inc. (NYSE:SNAP) shares are down more than -38.97% this year and recently increased 10.10% or $1.37 to settle at $14.94. GoDaddy Inc. (NYSE:GDDY), on the other hand, is up 31.87% year to date as of 12/04/2017. It currently trades at $46.09 and has returned -8.64% during the past week.

Snap Inc. (NYSE:SNAP) and GoDaddy Inc. (NYSE:GDDY) are the two most active stocks in the Internet Software & Services industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

Growth

One of the key things investors look for in a company is the ability to grow earnings at a high compound rate over time. Analysts expect SNAP to grow earnings at a -5.90% annual rate over the next 5 years. Comparatively, GDDY is expected to grow at a 19.00% annual rate. All else equal, GDDY’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Just, if not more, important than the growth rate is the quality of that growth. Growth can actual be harmful to investors if it comes at the cost of weak profitability and low returns. To adjust for differences in capital structure we’ll use EBITDA margin and Return on Investment (ROI) as measures of profitability and return. EBITDA margin of 15.33% for GoDaddy Inc. (GDDY). SNAP’s ROI is -33.50% while GDDY has a ROI of 3.10%. The interpretation is that GDDY’s business generates a higher return on investment than SNAP’s.

Cash Flow 




The amount of free cash flow available to investors is ultimately what determines the value of a stock. SNAP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.18. Comparatively, GDDY’s free cash flow per share was +0.97.

Liquidity and Financial Risk

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. SNAP has a current ratio of 8.60 compared to 0.60 for GDDY. This means that SNAP can more easily cover its most immediate liabilities over the next twelve months. SNAP’s debt-to-equity ratio is 0.00 versus a D/E of 6.17 for GDDY. GDDY is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SNAP trades at a P/B of 5.79, and a P/S of 25.38, compared to a forward P/E of 84.88, a P/B of 13.40, and a P/S of 3.64 for GDDY. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

When investing it’s crucial to distinguish between price and value. As Warren Buffet said, “price is what you pay, value is what you get”. SNAP is currently priced at a 17.27% to its one-year price target of 12.74. Comparatively, GDDY is -12.44% relative to its price target of 52.64. This suggests that GDDY is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 3.10 for SNAP and 2.10 for GDDY, which implies that analysts are more bullish on the outlook for SNAP.

Insider Activity and Investor Sentiment

Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. SNAP has a short ratio of 4.93 compared to a short interest of 4.16 for GDDY. This implies that the market is currently less bearish on the outlook for GDDY.

Summary

GoDaddy Inc. (NYSE:GDDY) beats Snap Inc. (NYSE:SNAP) on a total of 8 of the 13 factors compared between the two stocks. GDDY higher liquidity, is more profitable, generates a higher return on investment and has higher cash flow per share. GDDY is more undervalued relative to its price target. Finally, GDDY has better sentiment signals based on short interest.

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