AR Breakthroughs And Expanding Mobile Adoption Will Redefine Digital Experiences

Key Takeaways

• Snap's advanced AR platform, unique AI integration, and creator ecosystem are poised to drive major user engagement, new revenue streams, and higher margins.
  
• International network effects, Gen Z platform stickiness, and AI-driven ad tools position Snap for strong monetization, operating leverage, and durable earnings growth.
  
• Persistent net losses, unproven investments, stagnating core users, intensifying competition, and rising regulatory burdens threaten Snap's profitability, growth prospects, and long-term shareholder value.

Catalysts

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

• Analyst consensus expects AR and Specs to drive user engagement and revenue, but these views may vastly understate the transformative potential-Snap's full-stack AR platform, exclusive developer tools, and deep AI integration uniquely position Specs to leapfrog current AR experiences, potentially unlocking entirely new high-margin product categories and supercharging revenue and net margins well beyond current forecasts.
  
• While analysts broadly highlight international audience growth and mobile adoption, Snap's Q2 DAU expansion of 9% and accelerating engagement in regions outside North America indicate a powerful network effect; as smartphone penetration deepens and creator ecosystems localize, monetization in these markets could scale rapidly, driving outsized top-line acceleration and operating leverage.
  
• Spotlight and Snap Star creator momentum, with post volume and engagement up triple digits, is catalyzing a structural shift in time spent and monetization-this growing high-intent content layer is likely to drive sustained increases in ad impressions and yield per hour, materially enhancing revenue growth and margin mix long term.
  
• The strategic integration of social utility apps like Saturn, combined with Snap's leadership in visual and ephemeral communications, positions it to capture a disproportionate share of Gen Z mobile time; this deepening platform "stickiness" may anchor retention, boost daily engagement metrics, and lower user acquisition costs, leading to superior long-term earnings power.
  
• Snap's ongoing advancement of AI-driven automation in campaign management (smart bidding, auto targeting) and the roll out of performant direct response products is set to accelerate the onboarding of small and medium advertisers globally, broadening the advertiser base and boosting ad platform monetization rates, which can deliver durable and compounding improvements in earnings and free cash flow.

Snap Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Snap compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Snap's revenue will grow by 13.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -9.7% today to 1.6% in 3 years time.
• The bullish analysts expect earnings to reach $133.0 million (and earnings per share of $0.08) 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 bullish analyst cohort, the company would need to trade at a PE ratio of 217.0x on those 2028 earnings, up from -22.1x today. This future PE is greater than the current PE for the US Interactive Media and Services industry at 16.8x.
• 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 8.91%, as per the Simply Wall St company report.

Snap Future Earnings Per Share Growth

Risks

• Snap's persistent net losses and declining adjusted EBITDA, with Q2 net loss rising to 263 million dollars compared to 249 million dollars in the prior year, highlight ongoing challenges with profitability that could eventually force further share dilution or limit capital available for growth, ultimately depressing long-term earnings and shareholder value.
  
• The company's heavy and ongoing investment in augmented reality, machine learning, and AI infrastructure-such as more than 3 billion dollars committed to AR over 11 years-is leading to increased infrastructure and operating costs, but the financial benefit and monetization potential of these initiatives remain unproven, creating sustained pressure on margins.
  
• User growth in the core North America market is stagnating, with North America Monthly Active Users flat year-over-year and a slight decline in active days, indicating potential demographic shifts away from Snap's key user base; this trend undermines sustained revenue growth opportunities and may reduce future advertising appeal.
  
• Snap's ability to grow ad revenues is increasingly threatened by intensifying platform competition from larger rivals like Meta and TikTok, as well as by industry-wide secular trends such as digital advertising fatigue and the erosion of third-party app tracking, all of which together constrain Snap's revenue growth and pricing power.
  
• Rising regulatory scrutiny and litigation-related costs-notably higher legal and compliance expenses-coupled with global moves toward stricter data privacy and evolving regulation regarding social media's impact, will likely escalate cost structures, add compliance burdens, and reduce Snap's effectiveness in targeted advertising, weakening long-term net margins and revenue potential.

Valuation

• The assumed bullish price target for Snap is $12.93, which represents two standard deviations above the consensus price target of $9.28. 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 bullish 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 bullish analysts, you'd need to believe that by 2028, revenues will be $8.1 billion, earnings will come to $133.0 million, and it would be trading on a PE ratio of 217.0x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of $7.14, the bullish analyst price target of $12.93 is 44.8% higher.
  
• 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.