Earnings

Critical Comparison: Snap Inc. (SNAP) vs. Equinix, Inc. (REIT) (EQIX)

Snap Inc. (NYSE:SNAP) shares are down more than -9.24% this year and recently decreased -1.56% or -$0.21 to settle at $13.26. Equinix, Inc. (REIT) (NASDAQ:EQIX), on the other hand, is down -3.01% year to date as of 01/30/2018. It currently trades at $439.56 and has returned -0.55% during the past week.

Snap Inc. (NYSE:SNAP) and Equinix, Inc. (REIT) (NASDAQ:EQIX) are the two most active stocks in the Internet Software & Services industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.

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, EQIX is expected to grow at a 31.68% annual rate. All else equal, EQIX’s higher growth rate would imply a greater potential for capital appreciation.



Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. EBITDA margin of 46.95% for Equinix, Inc. (REIT) (EQIX). SNAP’s ROI is -33.50% while EQIX has a ROI of 5.00%. The interpretation is that EQIX’s business generates a higher return on investment than SNAP’s.

Cash Flow 




Cash is king when it comes to investing. SNAP’s free cash flow (“FCF”) per share for the trailing twelve months was -0.18. Comparatively, EQIX’s free cash flow per share was -1.13. On a percent-of-sales basis, SNAP’s free cash flow was -0.05% while EQIX converted -2.45% of its revenues into cash flow. This means that, for a given level of sales, SNAP is able to generate more free cash flow for investors.

Liquidity and Financial Risk

Balance sheet risk is one of the biggest factors to consider before investing. SNAP has a current ratio of 8.60 compared to 2.10 for EQIX. 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 1.53 for EQIX. EQIX is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

SNAP trades at a P/B of 5.14, and a P/S of 22.90, compared to a forward P/E of 69.00, a P/B of 5.24, and a P/S of 8.35 for EQIX. 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

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. SNAP is currently priced at a 7.28% to its one-year price target of 12.36. Comparatively, EQIX is -16.31% relative to its price target of 525.22. This suggests that EQIX 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 3.20 for SNAP and 1.90 for EQIX, 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 4.35 compared to a short interest of 3.46 for EQIX. This implies that the market is currently less bearish on the outlook for EQIX.

Summary

Equinix, Inc. (REIT) (NASDAQ:EQIX) beats Snap Inc. (NYSE:SNAP) on a total of 7 of the 14 factors compared between the two stocks. EQIX has higher cash flow per share, is more profitable and generates a higher return on investment. EQIX is more undervalued relative to its price target. Finally, EQIX has better sentiment signals based on short interest.

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