Snap Inc. (SNAP) owns the popular Snapchat social media platform, but its stock has faced a massive 91% decline since its peak in 2021. This drop coincided with significant changes in Apple’s privacy rules, which made it more difficult for app developers, like Snap, to target users with precision for advertising purposes.
As a result, Snap has struggled with revenue growth, but the company is actively making moves to improve its advertising platform and maintain user growth. Here’s a closer look at whether now is the right time to buy Snap stock.
Snap Is Innovating to Attract Advertisers
Snap is focused on improving its advertising platform, which is a key source of revenue. With businesses increasingly looking for cost-effective advertising channels that deliver high returns on investment, Snap is leveraging artificial intelligence (AI) and machine learning to enhance ad performance.
One of its key innovations is the Smart Campaign Solutions suite, which includes Smart Bidding. This feature helps businesses set a target “cost per action” (CPA) and adjusts bids in real time to meet that target. This technology aims to maximize results at the lowest cost, automating much of the bidding process.
For instance, a leading European sportswear brand saw a 50% reduction in CPA and doubled conversions when it adopted Smart Bidding. This kind of success could pave the way for future advertisers to increase their spending on the platform.
Snap has also introduced a revamped version of its Sponsored Snaps, allowing businesses to send ads directly to users’ chat inboxes. Since the chat function has high engagement, this opens up new advertising inventory for the company. Early results show a 22% increase in conversions for businesses using Sponsored Snaps.
Snapchat’s User Base Is Growing
In addition to innovations on the advertising front, Snapchat’s user base is expanding. As of Q2, Snapchat had a record 469 million daily active users, which represents a 9% year-over-year increase.
This growth is significant for advertisers seeking to reach a large and engaged audience, making the platform an attractive option for businesses.
Snap’s revenue also showed positive signs, with $1.34 billion in Q2 revenue—a 9% increase from the same period last year. As Snap continues to improve its advertising tools and attract new users, it could see faster revenue growth in the future.
Snap Stock Is Trading at a Low Valuation
Despite these positives, Snap’s stock is trading at a price-to-sales (P/S) ratio of just 2.1, the lowest level since it went public. This could indicate that the stock is undervalued, especially if Snap’s advertising innovations lead to stronger revenue growth in the future.
However, it’s important to note that Snap is still losing money on a GAAP basis, and its over $3.5 billion in debt could become a concern if the company doesn’t deliver results in the coming year.
The Long-Term Outlook for Snap
While Snap’s stock may not see a significant bounce in 2025, the company is making strategic moves to fuel a long-term recovery. Its growing user base and improving advertising platform could help turn things around over time.
However, investors need to be patient, as this recovery might take longer to materialize. The current situation may appeal to long-term investors with a high risk tolerance but could be less suitable for those looking for short-term gains.
Should You Buy Snap Stock?
If you’re considering buying Snap stock, it’s important to weigh the company’s innovations and growing user base against its ongoing challenges, including revenue growth and profitability concerns. Snap’s current low valuation could make it an attractive option for those willing to take on risk for potential future rewards.
However, it’s worth noting that Snap was not included in The Motley Fool’s Stock Advisor list of top stocks, which highlights 10 other stocks that analysts believe are better buys at the moment.
For those with a high risk tolerance and a long-term investment outlook, Snap might represent an opportunity. However, it’s critical to stay informed about how the company’s advertising innovations perform over the next several quarters.
