Why Snap Stock Dropped 24% Last Month

Key Points

• Despite macroeconomic headwinds, advertiser demand for Snap's ad inventory remains robust.

• However, the Snapchat system's user growth is slowing down.

• The social media platform faces a challenging turnaround with more questions than clear solutions on the horizon.

• 10 stocks we like better than Snap ›

Shares of Snap (NYSE: SNAP) fell 24.3% in August 2025, according to data from S&P Global Market Intelligence. The company behind the popular social media platform Snapchat posted decent second-quarter results on Aug. 5, but modest management comments and soft next-period guidance left Snap investors underwhelmed. The stock fell 17% the next day.

Image source: Getty Images.

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Snap's user growth is hitting the brakes

Snap targets 476 million daily active users (DAU) in the third quarter, a 7.4% increase from the year-ago period. That's a healthy increase, but also below the 9% year-over-year increase seen in the second quarter. And the DAU growth rate used to be reported in double-digit percentages, as recently as 2023. So it's a growing user community, but the growth rate is slowing down.

At the same time, Snapchat experienced a glitch in its advertising system last quarter. Ad-spot auctions sometimes resulted in very low prices, which Snap had to honor. This issue has been fixed, but not before reducing Snap's ad revenue.

That's not a long-term problem, but it's never fun to see technical glitches making a significant difference to a tech company's business results.

The silver lining in Snap's cloudy quarter

On the upside, Snap reported robust demand for its ad inventory. Despite an unstable macroeconomic backdrop, advertisers are still buying ad space.

At the same time, the company must fight to keep those Snapchat users coming. The slowing user growth may not look like a big issue at the moment, since Snap's revenue and profits still largely met management's guidance and Wall Street's estimates. But I understand why Snap investors take this trend seriously, as the long-term health of social media systems depends very directly on this metric.

The company is doing what it can to light a new spark under its user growth and content engagement numbers. Recent product launches include an interactive app for the Apple Watch and the Spotlight content-discovery algorithm. Artificial intelligence (AI) is featured in most of these tools, including generative AI features in the augmented reality Lens filters.

Will the AI stuff make a difference? I don't know, but Snap deserves some credit for pulling every available growth-boosting lever. Meanwhile, the stock looks fragile due to stalling top-line growth and consistently negative earnings. It's a turnaround story with more question marks than clear solutions.

So your mileage may vary, but I'm ghosting Snap's stock for now.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.