Snap's (SNAP 27.63%) stock hit an all-time high of $83.11 on Sept. 24, 2021. That gave the social media company a market cap of $131 billion and represented a 389% gain from its initial public offering (IPO) price of $17 in 2017. At the time, Snap's Snapchat seemed to be mounting a strong comeback against Meta Platforms' (META 0.43%) Facebook and Instagram. It also silenced the bears who argued that Snap should have just accepted Facebook's $3 billion buyout offer in 2013.
But today, Snap's stock trades at about $11 with a market cap of $18 billion. It tumbled below its IPO price as the growth in daily active users (DAUs) slowed down, its average revenue per user (ARPU) declined, and the company remained deeply unprofitable.
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That slowdown was caused by Apple's privacy-oriented changes to iOS, stiff competition from Instagram and ByteDance's TikTok, and tough macro headwinds. Rising interest rates also compressed Snap's valuation ratios, as investors backed away from higher-risk investments. That situation seems bleak, but could Snap bounce back over the next decade to be comparable to Meta Platforms again?
Similar challenges, different outcomes
Snap and Meta both struggled with TikTok's growth in short videos, as well as Apple's changes to iOS, which made it harder for apps to gather third-party data for personalized ads. Snap tried to counter those threats by expanding its first-party Direct Response ads and its Spotlight short video platform. Meanwhile, Meta rolled out new AI algorithms to gather more first-party data for its ads while expanding its Reels short video platform.
Snap and Meta both continued to gain new users as they dealt with those challenges. Snap's DAUs rose 10% to 414 million in 2023. Meta's total number of daily active people across its entire family of apps (Facebook, Messenger, Instagram, and WhatsApp) increased 8% year over year to 3.19 billion in December 2023. Within that total, Facebook's DAUs rose 6% year over year to 2.11 billion.
However, Snap still grew at a slower rate than Meta in 2023. Snap's revenue stayed nearly flat at $4.6 billion while Meta's revenue rose 16% to $134.9 billion. Snap's first-party ads didn't fully counter Apple's privacy changes, and its Spotlight video platform didn't gain much momentum against TikTok and Reels. Snapchat's growing dependence on lower-revenue overseas markets for new DAUs also consistently reduced its ARPU and total revenue.
Meta's AI algorithms for ad management curbed its dependence on third-party data and supported its expansion of Reels videos on Facebook and Instagram. It offset declining ad prices with a much higher number of ad impressions, and it attracted an influx of ad spending from Chinese e-commerce and gaming companies that were trying to reach more overseas customers. Those Chinese ad buyers -- which didn't plow nearly as much cash into Snapchat's advertising platform -- accounted for 10% of Meta's revenue in 2023 and contributed 5 percentage points to its annual revenue growth.
In 2024, analysts expect Snap's revenue to rise 14% as its turnaround efforts gradually kick in. However, they expect Meta's revenue to rise 20%. It's generally a red flag when an underdog is growing slower than the mature market leader.
A slimmer Snapchat
Back in 2021, Snap claimed it could achieve "50 percent-plus revenue growth" for "multiple years" by turning Snapchat into a super app with more augmented reality (AR) features, games, videos, and digital payment features. It sounded like Snap wanted to make Snapchat something like Tencent's WeChat super app in China -- which wasn't too surprising since Tencent became one of Snap's top investors in late 2017.
But after broadly missing those lofty revenue growth targets in 2022 and 2023, Snap hastily shut down its streaming video, gaming, and enterprise AR divisions to focus on strengthening Snapchat's core app, its AR tools, and its Spotlight short video platform. It also laid off a fifth of its workforce last year and cut 10% of the remaining jobs earlier this year.
Unfortunately, Snap remained deeply unprofitable on a generally accepted accounting principles (GAAP) basis even after executing those cost-cutting efforts -- and analysts expect its bottom line to stay in the red for the foreseeable future.
Meanwhile, Meta continued to burn billions of dollars each year to expand its unprofitable Reality Labs business (which houses its virtual and augmented reality devices), but it easily offset those losses with higher-margin ad revenues and remained firmly profitable. Therefore, Meta could gradually expand its core social network into the VR and AR markets over the next few years -- the Metaverse dream isn't dead -- while Snap shrinks its ecosystem and shrivels back into its niche market.
Snap won't become the next Meta Platforms
Snap is still smaller and less diversified, and targets a narrower niche of younger social media users than Meta. It's also growing at a slower rate, bleeding red ink, and struggling to keep pace with TikTok and Reels in the seismic shift toward short video posts. Snap might keep growing over the next decade as it gradually narrows its net losses, but it probably won't evolve into a trillion-dollar social media juggernaut like Meta Platforms.
