A Morgan Stanley analyst produced the financial forecasts provided in the attached Excel file shortly after...
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A Morgan Stanley analyst produced the financial forecasts provided in the attached Excel file shortly after the offering. The analyst assumed a WACC of 9.7% and 1,404 shares outstanding. Under these assumptions, what would be the discounted cash flow (DCF) estimate of Snap stock's fair market value on a per share basis? a. How sensitive is this estimate of Snap's stock price to assumptions about growth and WACC? b. Do the assumptions and forecasts appear reasonable? What data would you use to assess that? c. Analyze Snap's DCF value under various alternative assumptions of your own. i. What important changes would you make to the forecasts provided by Morgan Stanley, if any? ii. What discount rate would you recommend using in this DCF analysis? Assume a long-term government bond rate of 3.16%? iii. How, in particular, would you deal with the uncertainty associated with Snap's future growth? d. Do you believe that Snap under-priced its IPO? If so, why might it have done, and would you agree with that decision? If you were the CEO of a company undergoing an IPO, would you agree to under-price it at the time of the offering? Morgan Stanley Discounted Cash Flow Analysis, Snap Inc. Snap DCF Analysis Net revenue % change Y/Y Adjusted EBITDA (-)Cash taxes (+/-)Changes in working capital (-)Capex (-)Stock-based compensation Free Cash Flow (for valuation) % of revenue EBITDA margin Incremental EBITDA margin UFCF/EBITDA DCF Valuation Assumptions WACC Perpetual Growth Rate 2014 9.7% 3.50% 2015 58.7 -292.9 0 -15.5 28.3 73.5 -410 -499.0% 140.10% 2016 404.5 589.50% -459.4 0 -150.5 67 31.8 -709 -113.6% -48.20% 154.30% 2017E 943.7 133.30% -771.9 0 -256.6 82.6 75 -1186 -81.8% -57.90% 153.70% 2018E 1934.7 105.00% -609.5 0 -227.5 96.6 159.3 -1093 -31.5% 16.40% 179.30% 2019E 3254 68.20% -194.6 0 -230.5 109.1 202.S -737 -6.0% 31.40% 378.70% 2020E 4901.7 50.60% 362.6 0 -228.4 120.1 256.5 -242 7.4% 33.80% -66.90% 2021E 6907.3 40.90% 1474 0 -208.9 130.1 316.6 818 21.3% 55.40% 55.50% 2022E 9188.5 33.00% 2616.1 0 -223.8 140.1 421.1 1831 28.5% 50.10% 70.00% 2023E 11635.3 26.60% 3887.8 0 -248.1 148.1 533.3 2958 33.4% 52.00% 76.10% 2024E 14130.6 21.40% 5222.5 823.3 -206.9 155.1 647.7 3390 37.0% 53.50% 64.90% 2025E 16568.9 17.30% 6573.6 1448.4 -150.6 161.1 759.4 4054 39.7% 55.40% 61.70% Terminal Year 17148.8 3.50% 6803.7 4196.1 70047.8 39.70% 61.70% A Morgan Stanley analyst produced the financial forecasts provided in the attached Excel file shortly after the offering. The analyst assumed a WACC of 9.7% and 1,404 shares outstanding. Under these assumptions, what would be the discounted cash flow (DCF) estimate of Snap stock's fair market value on a per share basis? a. How sensitive is this estimate of Snap's stock price to assumptions about growth and WACC? b. Do the assumptions and forecasts appear reasonable? What data would you use to assess that? c. Analyze Snap's DCF value under various alternative assumptions of your own. i. What important changes would you make to the forecasts provided by Morgan Stanley, if any? ii. What discount rate would you recommend using in this DCF analysis? Assume a long-term government bond rate of 3.16%? iii. How, in particular, would you deal with the uncertainty associated with Snap's future growth? d. Do you believe that Snap under-priced its IPO? If so, why might it have done, and would you agree with that decision? If you were the CEO of a company undergoing an IPO, would you agree to under-price it at the time of the offering? Morgan Stanley Discounted Cash Flow Analysis, Snap Inc. Snap DCF Analysis Net revenue % change Y/Y Adjusted EBITDA (-)Cash taxes (+/-)Changes in working capital (-)Capex (-)Stock-based compensation Free Cash Flow (for valuation) % of revenue EBITDA margin Incremental EBITDA margin UFCF/EBITDA DCF Valuation Assumptions WACC Perpetual Growth Rate 2014 9.7% 3.50% 2015 58.7 -292.9 0 -15.5 28.3 73.5 -410 -499.0% 140.10% 2016 404.5 589.50% -459.4 0 -150.5 67 31.8 -709 -113.6% -48.20% 154.30% 2017E 943.7 133.30% -771.9 0 -256.6 82.6 75 -1186 -81.8% -57.90% 153.70% 2018E 1934.7 105.00% -609.5 0 -227.5 96.6 159.3 -1093 -31.5% 16.40% 179.30% 2019E 3254 68.20% -194.6 0 -230.5 109.1 202.S -737 -6.0% 31.40% 378.70% 2020E 4901.7 50.60% 362.6 0 -228.4 120.1 256.5 -242 7.4% 33.80% -66.90% 2021E 6907.3 40.90% 1474 0 -208.9 130.1 316.6 818 21.3% 55.40% 55.50% 2022E 9188.5 33.00% 2616.1 0 -223.8 140.1 421.1 1831 28.5% 50.10% 70.00% 2023E 11635.3 26.60% 3887.8 0 -248.1 148.1 533.3 2958 33.4% 52.00% 76.10% 2024E 14130.6 21.40% 5222.5 823.3 -206.9 155.1 647.7 3390 37.0% 53.50% 64.90% 2025E 16568.9 17.30% 6573.6 1448.4 -150.6 161.1 759.4 4054 39.7% 55.40% 61.70% Terminal Year 17148.8 3.50% 6803.7 4196.1 70047.8 39.70% 61.70%
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Related Book For
Intermediate Accounting
ISBN: 978-1259548185
8th edition
Authors: David Spiceland, James Sepe, Mark Nelson, Wayne Thomas
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