Is Snap Stock a Buy Now?

After the actions of the social media company Meta platformsowner of Facebook and Instagram, up more than 90% in the past 12 months, could rival social media company’s stock Snap (SNAP 2.94%) Do you see similar success?

During the same period, Snap stock rose 30%, but it was a roller coaster for investors. Shares hit a 52-week low of $8.28 last September, then rose to a high of $17.90 in December. Now, they are down to about $10 as of this writing.

Despite the current decline, Snap stock could see another rally. With the stock not far from its 52-week low, now might be the time to invest in the company. But to know if it’s a good long-term investment, let’s dig into Snap to understand where it stands today.

The keys to Snap’s success

Snap has a strong 2024. In the first half of this year, the company generated $2.4 billion in revenue, up 18 percent from $2.1 billion in 2023.

So far, Snap appears to be a different company than last year, when it ended 2023 on a rocky note. At the time, its revenue of $4.6 billion in 2023 was flat compared to 2022. So, its performance this year has renewed its position as a growth stock.

One factor in Snap’s turnaround is that it made improvements to its advertising platform, which doubled the number of active advertisers in the second quarter from a year earlier. This is crucial because the company makes almost all of its advertising revenue through the Snapchat app.

Another important element was the increase in Snap’s daily active users (DAU). The more people who use Snapchat regularly, the more advertisers the company can attract, leading to increased revenue. In Q2, DAUs reached 432 million, up 9% from a year ago.

One of the ways Snap supports user growth is by incorporating artificial intelligence into Snapchat. Artificial intelligence has been used to enhance the app’s augmented reality experience, which it calls Lenses. For example, an AI-based objective was created in collaboration with Beyoncé to promote her latest album, and users engaged with it 80 million times in the first three days of its release.

Other factors to consider with Snap

The combination of revenue and DAU growth suggests that Snap may have turned a corner from its lackluster performance in 2023. The company expects strong revenue growth to continue in Q3, forecasting sales of at least $1.3 billion, which represents another quarter of double-digit growth from 2023’s $1.2 billion.

Another positive indicator is the second quarter net loss of $248.6 million. How can lack of profit be a good thing? For Snap, that’s a reduction from the prior year’s net loss of $377.3 million.

The company has worked to reduce expenses, including a 12% year-over-year reduction in personnel costs in Q2. This helps move Snap one step closer to eventual profitability.

In addition, Snap’s revenue performance in the first half of 2024 was supported by the tailwind of the advertising industry expansion. The digital advertising market is projected to grow 12% year-on-year in 2024 and is expected to register double-digit growth through 2026.

To buy or not to buy Snap stock

These factors combine to make Snap an attractive investment. However, there is one red flag to be aware of. The company’s North American DAUs have been flat over the past few quarters. This means that 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 of the majority of the company’s sales. With user growth stagnant in this region, arguably Snap’s most important market, it doesn’t help the company’s likelihood of continued revenue growth.

As a result, for Snap to become a long-term investment, it needs to continue its upward trend in revenue and DAU, especially through the fourth quarter, when it historically generates the most revenue annually . This would prove that its stagnation among North American users might not hinder its long-term prospects.

For now, instead of buying the stock, it’s better to watch Snap’s performance in the coming quarters. Its fourth-quarter results are especially important to see if it can end 2024 with the kind of double-digit year-over-year growth seen in the first half of the year and avoid a disappointing 2023 result.