SNAP: Higher Margin Revenue Streams Will Drive Margin Expansion Over The Next Two Years

The analyst price target for Snap has been raised modestly, as analysts cite solid quarterly results and expectations for higher-margin revenue streams in the coming years.

Analyst Commentary

Recent updates from the Street indicate a nuanced outlook for Snap. Analyst opinions are divided, with several raising their price targets on the back of solid quarterly results and promising developments in revenue generation. Others remain cautious regarding the company’s near-term prospects and execution risks.

• Bullish analysts highlight steady revenue and stronger than expected adjusted EBITDA in Q3, suggesting improving operational efficiency.
• Optimism centers on Snap’s pursuit of higher-margin revenue streams, notably through new partnerships such as the Perplexity deal. This could benefit margins in 2026.
• Guidance for Q4 points to stable top-line growth at the high end, reinforcing confidence in Snap’s ability to sustain its momentum into next year.
• Product innovation, including potential AI integration inside Snapchat, is viewed as a catalyst for future growth and user engagement.

• Bearish analysts warn that Snap continues to lose market share to larger peers in digital advertising, such as Meta, Google, and Reddit. This could limit upside over the medium term.
• Recent downgrades cite increasing risk to the downside, with checks indicating more negative sentiment and concerns around Snap’s competitive positioning.
• While revenue trends have improved, some see tough year-over-year comparisons and ongoing macro uncertainty as headwinds that may restrict further positive guidance revisions.
• Profitability improvements may take longer than anticipated, as mixed ad trends and uncertain new product adoption weigh on near-term execution.

What's in the News

• The European Commission plans to simplify GDPR and other privacy rules to foster AI growth, which could impact Snap and other tech companies operating in Europe (Politico).
• Australia is expanding its ban on social media for users under 16 to include Snapchat, with enforcement to begin on December 10 (ABC).
• Mark Zuckerberg of Meta, Snap CEO Evan Spiegel, and Instagram’s Adam Mosseri are ordered to testify at a trial in January regarding the impact of social media on younger users (CNBC).
• New York City has filed a lawsuit against Snap and other social media platforms, alleging they contributed to youth addiction and caused a public nuisance (Reuters).
• China's Commerce Ministry says it will work with the U.S. to resolve TikTok-related issues, with Snap identified among companies affected by potential changes in the social media landscape (Bloomberg).

Valuation Changes

• Fair Value has risen slightly from $9.60 to $9.84, reflecting modest upward revisions in valuation assumptions.
• Discount Rate has decreased marginally from 9.15% to 9.09%, indicating a small reduction in perceived risk or capital costs.
• Revenue Growth projections have edged down from 10.25% to 10.10%, suggesting a tempered outlook for top-line expansion.
• Net Profit Margin estimates have fallen from 10.25% to 9.87%, pointing to slightly lower expectations for profitability.
• Future P/E ratio has increased from 28.6x to 30.1x, which indicates a higher valuation relative to projected earnings.