• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Technology

Cramer: If Snap Is to Grow Into Its Market Cap, I'd Go Long Twitter Here

If there is more adoption of social advertising, the biggest winner would be Twitter, not Snap.
By JIM CRAMER
Mar 03, 2017 | 06:52 AM EST
Stocks quotes in this article: SNAP, FB, TWTR, ACIA, TWLO

Will Snap (SNAP) open the gates to other companies that have been sitting on the sidelines, waiting for the moment to offer shares?

I think it should.

Let's understand that if SNAP is worth $28 billion as the stock market says it is, there are a heck of a lot of other companies with big losses and no real chance for profits that would like to get just a piece of that valuation.

Remember -- and I think I will write this in every article about SNAP -- this company is worth far more than what Action Alerts PLUS charity portfolio holding Facebook (FB) was on a price-to-sales basis: 28x vs. 19x. So I am not ever going to be able to make a case to own it, unless its revenues increase dramatically, its daily average users accelerate and its margins come up quickly.

It makes no sense as an investment unless it can rapidly make those changes. Anything's possible, but I will stand on the notion that this stock trades where it does because of the mechanics of the syndicate desk and nothing else -- you get stock at $17, you have to buy it in the after-market.

Now, not everyone took that bet. My survey of buyers indicates that 30% of the top 15 accounts chose not to play, given that they would have to come into the aftermarket to buy.

But if there is one thing for certain, it's that there has to be a more rapid adoption of online social advertising than we even have now. More advertisers have to be willing to pay for those daily average users than currently do to justify the kind of valuation SNAP has.

How badly does that have to happen?

I don't like to suggest shorts and you can't short a new red-hot deal because it isn't seasoned.

But if SNAP is to grow into its market cap, I think that the entire group must lift to the point where I would go long Twitter (TWTR) here and short SNAP, betting that even if there is more adoption the biggest winner would be Twitter, not SNAP.

Everyone hates Twitter now at $11 billion, almost exactly half what it was for sale for in October. SNAP's loved at $28 billion.

While I understand that Twitter will have a bad quarter and I am sure that SNAP will have a good one, I just think that the adoption rate for advertisers is the driving force. So the paid trade is what makes sense if SNAP stays here and can be shorted -- usually one month in is the timeframe where you won't get hung.

Why do you want to be careful about this type of shorting? Take a look at Acacia Communications (ACIA) and Twilio (TWLO) . Both companies are pretty good, although the former has been inconsistent in earnings of late.

Both stocks got off to hot starts; too hot.

Both attracted intense short selling. The shorts almost wrecked their years, until secondaries were done to alleviate the tightness.

For all I know, the holders who took down SNAP yesterday aren't going anywhere, so it might be a difficult short.

So you have to wait.

But let's be clear, if more deals come, as is the presumption from the success of SNAP, and you don't get more advertising and daily user adoption, a long Twitter short SNAP may be the best way to play the resurgence in IPOs and social media.

Oh, and to be sure, SNAP can't be taken over. Its stock is a call on nothing.

Twitter? It was for sale once; it can be for sale again in a few months, after the short swing rules come into play -- don't forget Jack Dorsey just bought $7 million dollars' worth of stock.

So if Twitter gets its act together after this bad quarter next, and ad dollars keep flowing into the space, the trade should work, and is probably worth doing.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, is long FB.

TAGS: Investing | U.S. Equity | Technology | Markets | How-to | Jim Cramer | Risk Management | Short-selling | Stocks

More from Technology

Compared to the Rest of the Market, International Game Tech Looks Pretty Good

Timothy Collins
Mar 3, 2021 3:12 PM EST

This isn't an aggressive trade in my view but I'm not sure I want to be aggressive here.

An Update on the Weakening Trade Desk Charts

Bruce Kamich
Mar 3, 2021 12:55 PM EST

We're in no rush to be a buyer.

Marvell Technology Reports Wednesday, Here's My Trade Idea

Stephen Guilfoyle
Mar 3, 2021 11:17 AM EST

But, I will not be messing around with MRVL equity ahead of the digits.

China's Rubber-Stamp Congress Set to Kick Off

Alex Frew McMillan
Mar 3, 2021 7:45 AM EST

Cracking down on Hong Kong and outlining plans for future growth are two key items on the agenda in Beijing.

Biden Bits, Vaccine Vanguard, Unmasking Folly, Minerd Musings, Ives Inklings

Stephen Guilfoyle
Mar 3, 2021 7:36 AM EST

Among other things, the president works to align Democratic senators to support his massive Covid relief bill.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 08:50 AM EST PAUL PRICE

    Michaels: Close to a Deal?

    It appears that a deal could be announced soon. ...
  • 08:34 AM EST GARY BERMAN

    Wednesday Morning Fibocall for 3/3/2021

    SPX (Long-Term View) The 20 DMA @ 3889 with the ...
  • 06:05 PM EST PAUL PRICE

    Michael's (MIK) Up on Takeover Rumors

    The NYT says talks are underway regarding a buyout...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login