The recent stock market sell-off is dragging down many corporations, including Snap(NYSE: SNAP), a social media specialist. Though the corporate ended 2024 with strong momentum, its shares have declined by 18% since January. Still, there are good reasons to be bullish on Snap. The corporate’s long-term prospects look attractive despite a turbulent past few years. Read on to search out out more.
Snap, the parent company of Snapchat, became publicly traded in March 2017. Since then, the corporate’s performance has not been impressive, to place it mildly. The tech leader has encountered several problems. To call just three of those issues: Some social media platforms copied its signature self-destructing pictures and videos model; an iOS software update made it harder for the corporate to launch targeted ads; and a big slowdown in ad spending amid economic challenges led to worse-than-expected revenue.
The result has been inconsistent top-line growth and chronic net losses, which just isn’t a recipe for achievement for any company. Nevertheless, Snap’s financial results for much of last yr, including the fourth quarter, were pretty strong. The corporate’s revenue of $1.6 billion for the period was up 14% in comparison with the year-ago quarter. Snap turned in a net income of $9 million in comparison with a net lack of $248 million reported in Q4 2023, while its adjusted earnings before interests, taxes, depreciation, and amortization (EBITDA) landed at $276 million, up 73% in comparison with the year-ago period.
Several other key metrics, including Snap’s free money flow, improved. Snap’s Q4 results weren’t only a fluke. The corporate’s business is improving and will deliver excellent results over the subsequent decade.
Snap still makes most of its money from ads. So it’s crucial for the corporate’s platform to proceed growing its users. The social media specialist is making progress. In Q4, Snap’s day by day lively users (DAUs) climbed by 9% yr over yr to 453 million. As well as, Snap continues to launch features on Snapchat that help increase engagement, with artificial intelligence (AI)-powered ones being popular.
In Q4, Snapchat’s “Me within the 60’s,” a feature that generates an image of what a user would appear to be within the 60’s, was viewed greater than 900 million times. As long as Snap has a growing base of users who engage in projects like these, Snapchat can be a great goal for corporations looking to achieve potential customers. And lately, the corporate has improved its promoting platform due to machine learning.
Nevertheless, Snap has been seeking to diversify its revenue sources. Considered one of the corporate’s best efforts is Snapchat+, a subscription option that it has been ramping up previously few years. Snap noted that its “other revenue” grew by 131% yr over yr in 2024 and ended the yr with an annual run rate of over $500 million. Most of that comes from Snapchat+. These subscriptions provide a gradual, reliable, predictable income for the corporate. Given its current run rate, Snapchat+ should contribute meaningfully to Snap’s ends in the subsequent few years.
Moreover, Snap continues to speculate in its long-term plan to be a pacesetter in augmented reality (AR). AR-based features on the app, increasingly powered by generative AI, help drive engagement. Here’s what all this might mean for the corporate’s future. Snap still sees significant room to grow monthly lively users (MAUs) on Snapchat, considering its smartphone penetration in North America is simply 22%. It’s even lower in other regions, so the corporate has substantial whitespace.
Despite the fact that there are other social media platforms, Snap has established itself as a pacesetter — it offers a somewhat different experience from its peers. As Snap’s MAUs expand and the corporate introduces newer features to grow engagement, ad revenue and Snapchat+ subscriptions should increase at a great clip. Meanwhile, Snap’s profitability should proceed improving.
So, despite being a disappointing stock since its initial public offering (IPO), Snap could turn things around and deliver much stronger returns from here on out due to a more diversified base of revenue and AI features which can be helping improve engagement and efficiency across the corporate’s business, including inside its promoting platform. That is why Snap’s 18% drop this yr represents a wonderful opportunity for long-term investors.
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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Idiot has no position in any of the stocks mentioned. The Motley Idiot has a disclosure policy.