After shares of social media company Meta Platforms, owner of Facebook and Instagram, surged more than 90% over the past 12 months, could the stock of rival social media company Snap (SNAP +0.58%) see similar success?
Over the same time period, Snap stock is up 30%, but it's been a roller coaster for investors. Shares reached a 52-week low of $8.28 last September, then zoomed to a high of $17.90 in December. Now, they've dropped to around $10 at the time of this writing.
Despite its current downturn, Snap stock could see another upswing. With shares not far from their 52-week low, now could be the time to invest in the company. But to know if it's a good investment for the long haul, let's dig into Snap to understand where it's at today.
NYSE: SNAP
Key Data Points
Snap's keys to success
Snap is having a strong 2024. Through the first half of this year, the company generated $2.4 billion in revenue, an 18% jump up from 2023's $2.1 billion.
So far, Snap appears to be a different company from last year, when it ended 2023 on a dour note. At that time, its $4.6 billion in 2023 full-year revenue was flat compared to 2022. So its performance this year has reignited its position as a growth stock.
One factor in Snap's transformation is that it made improvements to its advertising platform, which resulted in doubling the number of active advertisers in the second quarter compared to the prior year. This is key since the company makes nearly all its revenue from advertising through its Snapchat app.
Another important element was the growth in Snap's daily active users (DAUs). The more people who use Snapchat on a regular basis, the more advertisers the company can attract, leading to rising revenue. In Q2, DAUs reached 432 million, up 9% from a year ago.
One of the ways Snap is bolstering user growth is by incorporating artificial intelligence into Snapchat. AI was used to improve the app's augmented reality experience, which it calls Lenses. For example, an AI-powered Lens was created in collaboration with Beyoncé to promote her latest album, and users engaged with it 80 million times in the initial three days of its rollout.
Other factors to consider with Snap
The combination of revenue and DAU growth suggests Snap may have turned a corner from its lackluster 2023 performance. The company expects its strong revenue growth to continue into Q3, forecasting sales of at least $1.3 billion, which represents another quarter of double-digit growth from 2023's $1.2 billion.
A further positive indicator is its Q2 net loss of $248.6 million. How can a lack of profits be a good thing? In Snap's case, it represents a reduction from the previous year's net loss of $377.3 million.
The company has worked to reduce expenses, including a 12% year-over-year reduction in Q2 personnel costs. This helps to move Snap one step closer to eventual profitability.
In addition, Snap's revenue performance in the first half of 2024 was bolstered by the tailwind of ad industry expansion. The digital advertising market is forecasted to grow 12% year over year in 2024, and is expected to see double-digit increases through at least 2026.
To buy or not to buy Snap stock
These factors combine to make Snap an appealing investment. However, there's one red flag to be aware of. The company's DAUs in North America remained flat for the past several quarters. This means user growth is coming from outside the region.
North America accounted for $741.6 million of Snap's $1.2 billion in Q2 revenue, making it the source for the bulk of the company's sales. With user growth stalled in this region, arguably Snap's most important market, the situation doesn't help the company's likelihood of continued revenue expansion.
As a result, for Snap to become a worthwhile long-term investment, it must continue its revenue and DAU growth trend, especially through the fourth quarter, when it historically generates the most revenue annually. This would demonstrate that its stagnation in North American users may not hinder its prospects over the long haul.
For now, rather than buying shares, it's better to keep an eye on Snap's performance in the coming quarters. Its Q4 results are particularly important to see if it can wrap up 2024 with the kind of double-digit year-over-year growth seen in the first half, and avoid 2023's disappointing outcome.
