Down 90% Over the Past 5 Years (but Up More Than 30% in April Alone), Is Snap Stock Finally a Buy?

During the trailing five years, shares of social media company Snap (NYSE: SNAP) have endured a brutal drawdown. The stock has collapsed, falling about 90%.

This steep decline comes as the Snapchat parent company seems to struggle to consistently grow revenue and achieve meaningful double-digit growth, and to achieve meaningful profitability in the face of intense competition from deep-pocketed tech giants like Meta Platforms (NASDAQ: META).

Adding to the narrative, Snap just announced a fresh round of layoffs this week. While cost-cutting measures are often cheered by investors as a step toward profitability, the move also highlights the ongoing challenges facing the business.

With the stock trading at a fraction of its former highs, is this a rare opportunity to buy the dip, or is Snap stock simply too risky?

Image source: Getty Images.

Show me the profits

Snap's recent business performance paints a picture of a company trying to pivot from a growth-at-all-costs model to one focused on sustainable profitability.

The company's most recent earnings report showed some encouraging signs. For its fourth quarter of 2025, Snap reported a 10% year-over-year increase in revenue to $1.72 billion. And the company posted a rare generally accepted accounting principles (GAAP) net income of $45 million for the quarter -- a nice improvement from its $9 million profit in the year-ago period.

But zooming out to the full year tells a more sobering story. For the entirety of 2025, Snap was unprofitable, posting a net loss of $460 million.

And a major driver of this unprofitability seems to be the company's heavy reliance on stock-based compensation. In 2025, Snap's stock-based compensation expense hovered around $1 billion. Dilution this extreme could act as a severe headwind to creating meaningful shareholder value, making it difficult for the company's bottom line to inflect into consistent, durable profitability over time.

Cutting costs to find focus

This week's news underscores the pressure Snap is under. The company announced it is laying off about 16% of its full-time workforce.

In a note sent to employees, Snap CEO Evan Spiegel explained the rationale behind the difficult decision.

"Over the past several months, we have carefully reviewed the work required to best serve our community and partners, and made tough choices to prioritize the investments we believe are most likely to create long-term value," Spiegel said in the note to employees on Wednesday.

The CEO also pointed to artificial intelligence (AI) as a catalyst for efficiency, noting that its teams are leveraging AI to "reduce repetitive work, increase velocity, and better support our community, partners, and advertisers."

The impact of these job cuts is expected to be significant. Specifically, management said it expects to reduce its "annualized cost base by more than $500 million" by the second half of this year -- a big number for a company with a market capitalization of just over $10 billion as of this writing.

Still, the fact that the company even needs to resort to significant layoffs highlights the intensely competitive nature of the market Snap operates in.

The Meta problem

This brings us to the biggest risk arguably facing Snap investors: the competition.

Snap operates in the shadow of Meta -- a tech company with significant scale, a massive cash war chest, and a highly engaged user base across Facebook, Instagram, Messenger, and WhatsApp. Meta's ability to aggressively invest tens of billions of dollars into AI infrastructure and imitate successful features from competitors often creates challenges for smaller platforms like Snap.

Just how far does Meta's scale go? Consider this context: The company expects capital expenditures this year to be between $115 billion and $135 billion as the company invests aggressively in AI.

Still, is Snap stock a buy given how much it has fallen? After all, users on the platform remain engaged. Indeed, the company's daily active users are still growing, rising 5% year over year in the fourth quarter of 2025.

Even after a 90% drop, Snap stock arguably still looks too risky for my portfolio.

Yes, the company's recent cost-cutting measures and modest revenue growth suggest management is taking its profitability challenges seriously. But the stock still requires investors to bet on a turnaround story that is far from guaranteed.

Given its significant reliance on stock-based compensation and the constant threat of Meta's massive resources, the company has a lot to overcome -- even as it lays off workers and maintains a highly engaged user base. I'd rather stay on the sidelines and watch Snap's turnaround efforts from a safe distance.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.