SNAP: Higher Margin AI Partnerships Will Drive Profitability Upside Over The Next Years

Analysts have modestly raised their price target on Snap, reflecting a slight uptick in fair value alongside improving revenue growth, profit margin expectations, and a lower discount rate. This shift is supported by broadly solid Q3 results, stronger than expected AEBITDA, and new higher margin revenue streams that have driven several recent target increases to the high single digit and low double digit dollar range.

Analyst Commentary

Bullish analysts point to a slowly improving fundamental picture at Snap, with recent Q3 results and Q4 guidance generally viewed as solid and supportive of modestly higher valuation levels. Upgrades and price target increases into the high single digit and low double digit range underscore a view that execution is stabilizing and that new initiatives could support a more durable growth trajectory.

Bullish Takeaways

• Bullish analysts highlight that Q3 performance and Q4 outlook showed in line revenue trends with stronger than expected AEBITDA, reinforcing confidence in Snap's ability to execute against profitability targets.
• Several firms have nudged price targets higher into the 8 to 11 dollar range, reflecting incremental confidence in revenue growth, operating leverage, and slightly improved long term fair value assumptions.
• New higher margin revenue streams, including AI focused partnerships such as the Perplexity deal, are seen as accretive to margins starting in 2026, supporting higher medium term EBITDA expectations.
• Some bullish analysts see Snap's product roadmap, including potential hardware and AI integrations, as optionality that could unlock additional engagement and monetization beyond current estimates.

Bearish Takeaways

• Bearish analysts remain concerned that Snap continues to be a share giver in digital advertising, with larger platforms still capturing most incremental ad dollars, which caps the upside to revenue growth and valuation multiples.
• Checks from more cautious firms indicate that advertiser sentiment toward Snap has grown more negative over time, with risk skewed to the downside if macro or competitive pressures intensify.
• Some research points to underwhelming ad trend momentum into 2025, suggesting that improved subscription and new revenue streams may not fully offset slower core ad growth in the near term.
• For more skeptical analysts, the risk reward remains unfavorable at current levels, with uncertainty around execution on AI initiatives and hardware launches limiting conviction in a sustained re rating.

What's in the News

• New York City has filed a lawsuit against Snapchat and other major platforms, alleging they addict children to social media and create a public nuisance, adding to mounting legal and regulatory scrutiny of youth safety on social apps (Reuters).
• Mark Zuckerberg, Evan Spiegel, and Instagram chief Adam Mosseri have been ordered to testify in the first trial focused on alleged harms to younger users from social media design and engagement features, keeping legal risk for Snap’s product practices in focus (CNBC).
• Australia is broadening its under 16 social media ban to include Snapchat along with other major platforms, signaling growing international momentum for stricter age based access rules that could affect Snap’s user growth and engagement in key markets (ABC).
• The European Commission is preparing a digital omnibus package that would ease some GDPR restrictions to support AI development, potentially creating new data processing exceptions for AI companies that could influence how Snap and peers train and deploy AI features (Politico).
• Integral Ad Science expanded its partnership with Snap to provide broader third party measurement across Snapchat ad formats, giving advertisers more tools around viewability, invalid traffic, and brand safety to optimize campaign effectiveness on the platform.

Valuation Changes

• Fair Value Estimate has risen slightly from 9.84 to 9.87, reflecting a modest upgrade in the intrinsic value assessment for Snap shares.
• Discount Rate has fallen slightly from 9.09 percent to 9.03 percent, implying a marginally lower perceived risk profile or cost of capital.
• Revenue Growth has inched higher from 10.10 percent to 10.11 percent, indicating a very small uplift in forward growth expectations.
• Net Profit Margin has increased modestly from 9.87 percent to 9.98 percent, signaling slightly improved long term profitability assumptions.
• Future P/E has declined slightly from 30.09x to 29.79x, suggesting a marginally lower valuation multiple applied to Snap’s expected earnings.