Snap (SNAP +4.65%), the parent company of Snapchat, lost more than 43% of its value over the past 12 months. It also trades 45% below its IPO price and nearly 89% below its all-time high. That decline can be attributed to concerns about its slowing ad sales, the impact of tariffs and trade wars on its advertisers, and tougher competition. Citing those macroeconomic challenges, Snap management didn't provide an outlook for the second quarter during its first quarter report in late April.
All of those issues cast dark clouds over the company, even though Snapchat remains one of the world's largest social media apps with 460 million daily active users (DAUs). Let's take a closer look at its business and see where its stock might be headed over the next 12 months.
Image source: Getty Images.
What happened to Snap over the past year?
After rising 64% in 2021 and 12% in 2022, Snap's revenue flatlined in 2023. That slowdown was caused by three challenges: Apple's iOS update, which made it tougher for Snap to collect third-party data for its ads; intense competition from ByteDance's TikTok and Meta Platforms' Instagram, and a messy macro environment.
As Snap dealt with those challenges, it struggled to gain new DAUs and grow its average revenue per user (ARPU) in North America. That pressure spooked its investors, since Snap generates much higher revenues in North America than its overseas markets.
But in 2024, Snap's revenue rose 16%. Its total DAUs increased as its stronger overseas growth offset its stagnant U.S. growth. It's stabilizing ad sales, fresh AI-powered lenses, Spotlight recommendations, and the expansion of its Snapchat+ subscriptions boosted its North American ARPU. It also rolled out new first-party ad tools to counter Apple's iOS changes and curb its dependence on third-party data. As a result, its total ARPU and revenue growth stabilized.
|
Metric |
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
Q1 2025 |
|---|---|---|---|---|---|
|
DAU growth (YOY) |
10% |
9% |
9% |
9% |
9% |
|
ARPU growth (YOY) |
10% |
6% |
6% |
5% |
5% |
|
Revenue growth (YOY) |
21% |
16% |
15% |
14% |
14% |
Data source: Snap. YOY = Year over year.
Snap's operating margin remains negative, but it improved year over year in the first quarter of 2025. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin also doubled year over year to 8%.
|
Metric |
Q1 2024 |
Q2 2024 |
Q3 2024 |
Q4 2024 |
Q1 2025 |
|---|---|---|---|---|---|
|
Operating margin |
(28%) |
(21%) |
(13%) |
(2%) |
(14%) |
|
Adjusted EBITDA margin |
4% |
4% |
10% |
18% |
8% |
Data source: Snap.
Those improvements can be attributed to Snap's stabilizing infrastructure costs, the growth of its higher-margin Snapchat+ subscriptions, and the increased efficiency of its AI-powered and automated ad bidding tools. It also lapped some big restructuring costs from a year earlier.
What will happen to Snap over the next year?
Snap didn't provide any guidance for the second quarter for three reasons. First, it generates a lot of its revenue from Chinese e-commerce companies like PDD's Temu and Shein. Its ad sales to those companies plunged at the start of the second quarter as the Trump administration's unpredictable tariffs and proposed changes to the "de minimis" duty-free exception for low-value imports disrupted their business strategies. Second, those trade headwinds affected other industries and the broader advertising market. Lastly, Snap said it would rein in its spending projections for the full year until the macro environment stabilized.
NYSE: SNAP
Key Data Points
For now, analysts expect Snap's revenue to rise 9% in 2025 and 11% in 2026. They expect its adjusted EBITDA to grow 6% in 2025, then accelerate to 45% growth in 2026 as it expands Snapchat+, monetizes its overseas users more effectively, and automates more of its ad sales. We should take those estimates with a grain of salt, but Snapchat's stable DAU growth, its resilience among younger users, and the expansion of its ecosystem could help it meet and beat those estimates.
With an enterprise value of $15.6 billion, Snap stock looks reasonably valued -- but not cheap -- at 3 times this year's sales and 29 times its adjusted EBITDA. If Snap meets Wall Street's expectations and still trades at the same forward valuations, its stock could rise about 45% over the next 12 months. But if it trades at a more modest 20 times its forward-adjusted EBITDA, it would stay nearly flat. Snap might not take off right away, but it might be a good time to buy the stock if you expect its headwinds to dissipate.
