Stricter Privacy And Meta Rivalry Will Impair Long Term Value

Key Takeaways

• User growth is stagnating amid intense competition and shifting attention to new platforms, pressuring engagement and future revenue streams.
  
• Reliance on digital ads is threatened by privacy changes and commoditized ad markets, hampering monetization and profitability despite ongoing innovation efforts.
  
• Expanding global user base, innovative AR and AI investments, and diversifying revenue streams are driving Snap's growth, profitability, and strategic financial flexibility.

Catalysts

Operates as a technology company in North America, Europe, and internationally.

• Snap faces the risk of long-term user stagnation or decline as younger generations shift their attention to emerging niche or decentralized platforms, while mature markets like North America are already showing signs of user base flatlining and even slight active days decline, putting persistent pressure on daily active users and future revenue growth.
  
• Increasingly stringent privacy regulations and growing consumer demand for data protection are likely to continue eroding the effectiveness of Snap's targeted advertising, hindering ad monetization and squeezing revenue at a time when the company remains heavily dependent on digital ad spend.
  
• Intensifying competition from larger and more diversified platforms such as Meta and TikTok could limit Snap's ability to innovate and retain users, while making new features and formats less distinctive, leading to slower user engagement growth and ultimately restraining advertising and subscription revenue expansion.
  
• Despite multibillion-dollar investments in augmented reality and cutting-edge hardware, the hardware market is nascent and unproven, exposing Snap to prolonged periods of high R&D and infrastructure costs without assurance of significant revenue contribution or improved net margins, which could extend the company's history of persistent unprofitability.
  
• The broader interactive media industry is showing signs of ad inventory commoditization, with digital ad pricing power waning and eCPMs declining-Snap already reported a 10 percent drop in eCPM despite strong impression growth-placing long-term pressure on both top-line revenue growth and margin expansion.

Snap Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Snap compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Snap's revenue will grow by 8.5% annually over the next 3 years.
• The bearish analysts are not forecasting that Snap will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Snap's profit margin will increase from -9.7% to the average US Interactive Media and Services industry of 11.0% in 3 years.
• If Snap's profit margin were to converge on the industry average, you could expect earnings to reach $793.0 million (and earnings per share of $0.46) by about September 2028, up from $-546.3 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.7x on those 2028 earnings, up from -21.9x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.9x.
• Analysts expect the number of shares outstanding to grow by 0.75% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.88%, as per the Simply Wall St company report.

Snap Future Earnings Per Share Growth

Risks

• Robust growth in monthly active users, with Q2 2025 showing a year-over-year increase of 64 million to 932 million, and a clear ambition to reach 1 billion users, suggests the company's global user base and engagement-especially among Gen Z and Millennials-could drive sustained increases in advertising revenue and top-line growth over time.
  
• Significant investments and successes in augmented reality, AI, and immersive tools-including the planned public launch of next-generation Specs AR glasses in 2026 and a thriving developer ecosystem-position Snap to benefit from secular trends in AR adoption and to introduce new high-margin revenue streams, supporting both revenue growth and potential margin expansion.
  
• The rapid growth of Snapchat+ and new subscription tiers like Lens+, reaching nearly $700 million in annualized run-rate and 16 million subscribers with 64% year-over-year growth, demonstrates strong traction in diversifying revenues beyond advertising, providing a more stable and potentially profitable recurring revenue base.
  
• Snap's improvements to ad platform performance, including innovations like Sponsored Snaps, AI-driven campaign tools, and focus on SMB and direct response advertisers, are yielding higher engagement and improved conversion metrics for advertisers, supporting further growth in ad revenue and possibly improving advertiser retention and pricing power.
  
• Consistent positive free cash flow over the trailing twelve months (nearly $400 million) and a strong balance sheet with $2.9 billion in cash and marketable securities offer the company the financial flexibility to invest in product innovation, fund global expansion, and pursue new monetization streams, all of which can bolster long-term earnings growth and support share price appreciation.

Valuation

• The assumed bearish price target for Snap is $7.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Snap's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $16.0, and the most bearish reporting a price target of just $7.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $7.2 billion, earnings will come to $793.0 million, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of $7.09, the bearish analyst price target of $7.0 is 1.3% lower. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.