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Snap Won't Stay Cheap For Long (NYSE:SNAP)

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  Published in Stocks and Investing on Thursday, September 11th 2025 at 13:56 GMT by Seeking Alpha
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Snap Inc. May Be About to Break Out of the “Cheap” Zone

Snap Inc. (SNAP), the parent of the popular messaging app Snapchat, has seen its share price drift to the “cheap” end of the market’s valuation spectrum for much of the past year. Yet, as a new round of earnings data and product updates arrive, there is growing consensus among equity researchers that the company’s valuation could rise sharply—provided the company can keep its user growth and monetisation momentum.

1. A Short‑Term Price Discount but Long‑Term Value

When analysts first assessed Snap’s price‑to‑earnings ratio in early 2023, it hovered around 12‑14x forward earnings—a figure that, when compared to Meta (FB) or Twitter (TWTR), seemed attractive. The article argues that this discount is “a reflection of the recent pressure on ad spend” rather than a true indicator of company fundamentals.

Snap’s recent financials reinforce the idea that the price discount is temporary. The company posted a 27 % YoY revenue increase in Q1 2025, driven by higher advertising revenue and the launch of a new “Discover” advertising segment. Moreover, its quarterly earnings beat analyst expectations by a comfortable margin, which suggests that the company’s earnings‑growth trajectory is robust.

2. Active Users and Monetisation Dynamics

Snap’s core metric—Daily Active Users (DAU)—remains a point of focus. As of the latest quarter, Snap had roughly 300 million DAUs, a growth rate that is slowing compared to its earlier years but still respectable. Analysts note that while the platform’s growth is not “explosive” at the moment, it remains strong relative to peers that have plateaued.

Revenue per user (ARPU) has been on a gradual rise, in part due to Snap’s focus on “story‑style” advertising formats that deliver higher conversion rates than static ads. The company has also started to push e‑commerce solutions—allowing brands to sell directly from within Snapchat—an initiative that could further boost ARPU.

3. Augmented Reality (AR) as a Growth Lever

The article devotes a significant portion to Snap’s AR strategy. Snapchat’s AR lenses and “Snap Spectacles” are positioned as “early‑stage, high‑impact” innovations that differentiate the platform from rivals. While the AR segment has not yet become a sizeable revenue driver, analysts believe that it will become a core growth engine as the technology matures.

Key to this potential is the “Lens Studio” platform, which allows third‑party developers to create custom AR experiences that can be monetised by Snap. The developer community has been expanding rapidly, and the platform’s ease of use may unlock new advertising formats that capture higher user engagement.

4. Competitive Landscape and Risk Factors

The article does not shy away from highlighting risks. Snap faces intense competition from TikTok, Meta’s Reels, and Instagram’s Story ads, all of which offer similar video‑first content and advertising solutions. Moreover, changes in digital‑advertising regulations—particularly around data privacy—could impact Snap’s ability to deliver targeted ads.

Another risk factor is the potential for “platform fatigue.” As user attention spreads across a growing number of social media apps, Snap must continue to innovate to keep users from drifting to competitors. Additionally, the company’s heavy reliance on advertising revenue exposes it to macro‑economic cycles that can depress ad budgets.

5. Catalysts for a Potential Upswing

The article outlines several catalysts that could lift Snap’s valuation:

1. Advertising Upside: The ongoing shift from “static” to “interactive” ad formats, coupled with a projected 10–12 % YoY ad‑revenue growth, could push earnings higher.
2. E‑Commerce: Early pilots of in‑app shopping have shown promising click‑through rates, suggesting that full‑scale rollouts could become a new revenue stream.
3. International Expansion: Snap’s penetration in India and Southeast Asia remains modest; strategic partnerships in these markets could accelerate DAU growth.
4. Product Innovation: A new suite of “AR‑powered” storytelling tools announced during the recent investor day might attract more creators and advertisers.

If these catalysts materialise, the article argues that Snap’s forward‑looking valuation would be “well‑justified,” potentially moving the stock into a “growth‑tier” band similar to Meta or TikTok.

6. Bottom‑Line Takeaway

Snap Inc. is currently trading at a price‑to‑earnings ratio that many view as a “cheap” discount, largely due to temporary dips in ad spend and market volatility. However, the company’s solid revenue growth, expanding AR ecosystem, and emerging e‑commerce initiatives position it well for a valuation rebound. While competition and regulatory uncertainties remain significant, the article suggests that “the discount is likely to evaporate” as Snap capitalises on its product strengths and continues to capture advertising dollars.

Investors who are bullish on Snap will likely monitor the next earnings cycle closely. If the company can sustain its revenue trajectory and roll out successful AR and e‑commerce products, the “cheap” label could be short‑lived, ushering Snap into a new growth phase in the social‑media landscape.