Down 90% From Its Record High, Can Snap Stock Snap Back in 2025?

Snap (NYSE: SNAP) is the parent company of the popular Snapchat social media platform. Its stock reached a peak of $83 during the tech frenzy in 2021, but it has since plunged by 90% as it couldn't sustain the extremely high valuation it held at the time.

Snap's revenue and profits have also been relatively lumpy over the last couple of years, but some of its innovations in advertising technology, augmented reality (AR), and artificial intelligence (AI) are starting to bear fruit.

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The stock is now trading near the cheapest level in its history, making this an ideal time to buy ahead of a potential long-term recovery.

Image source: Getty Images.

Innovation could drive Snap's rebound

Snap generates the majority of its revenue by selling advertising slots on Snapchat. In 2021, Apple changed its privacy rules, making it harder for social media platforms to track their users' activity across the internet, so they could no longer offer highly targeted ads to businesses. This is a key reason Snap stock is down so sharply over the last few years.

But Snap has worked hard to build a new advertising engine powered by machine learning (ML), which targets users more effectively on behalf of advertisers. In the first quarter of 2025, brands that ran app-install campaigns on Snapchat saw a 30% increase in conversions from Apple devices compared to the prior-year period, so the company's ML technology appears to be working.

In addition, Snap built an automated bidding system to help advertisers allocate their spending more efficiently, which lowers their cost-per-action (whether it be a product purchase, a link click, or an app download). During the first quarter, the company said early adopters of this tool saw an average drop of 32% in their cost-per-action while increasing their return on advertising spend by 16%.

Snap also continues to improve its AR technology, which is a big differentiator for advertisers. Businesses can create a "Lens" that allows users to try on clothing and accessories virtually through their smartphone camera, which makes them more likely to buy the product. In April, Snap launched Sponsored AI Lenses, which can autonomously insert users' likenesses into digital backgrounds created by businesses, making them at one with the brand. This is a great way for brands to increase engagement and create viral moments on Snapchat.

Speaking of AI, Snap continues to improve its My AI chatbot. It features multimodal capabilities powered by Alphabet's Gemini models, which means it can respond to text prompts, images, and videos. The integration with Gemini -- which happened in Sept. 2024 -- is driving a surge in activity on My AI. During the first quarter of 2025 alone, Snap said the chatbot's daily active users soared 55% year over year.

Snap is unlocking new revenue streams

In the first quarter, Snap's revenue rose 14% year over year to $1.36 billion -- a record amount for the first three months of the year. As I mentioned earlier, most of Snap's revenue comes from advertising, but it's trying to diversify its business to reduce risk and produce steadier growth rates.

The company launched a subscription service in 2022 called Snapchat+. For $3.99 per month, it gives users early access to new features, custom app icons, and more ways to interact with their friends. Snapchat+ had almost 15 million subscribers at the end of the first quarter, up 59% from the year-ago period, and revenue soared a whopping 75% to $152 million.

Here's the best part: Because it's a subscription product with monthly or annual renewals, Snapchat+ produces recurring revenue, which adds some predictability to the company's financial results. Based on the current number of users, the service is at a $600 million annualized run rate, and that figure is growing.

Snap also made progress at the bottom line during the first quarter by carefully managing its operating expenses, which only increased by 2%. It still lost $139.6 million on a GAAP (generally accepted accounting principles) basis, but that was a 54% reduction from its $305.1 million net loss from the same period last year.

But Snap was profitable based on an adjusted (non-GAAP) earnings before interest, tax, depreciation, and amortization (EBITDA). This is management's preferred metric because it excludes one-off and non-cash expenses. In Q1, adjusted EBITDA soared 137% year over year to $108.4 million, but it was down compared to the fourth quarter of 2024, which tends to be Snap's strongest period of the year.

Snap stock is cheap right now

When Snap stock peaked in 2021, its price-to-sales (P/S) ratio soared to around 40, which was an unsustainable level. But the 90% decline in the stock since then, combined with the company's consistent revenue growth, has pushed its P/S ratio down to just 2.5. That is near the cheapest level in Snap's history as a public company.

Data by YCharts.

But besides its valuation, there is another very compelling reason to buy Snap stock now. During the first quarter, Snapchat averaged a record 460 million daily active users, and that figure has been consistently climbing. As long as a growing number of people are flocking to the platform, it's will remain an attractive place for advertisers.

If the innovations in Snap's advertising platform continue to build momentum and its user base continues to grow, then the company's financial results will keep improving. Therefore, investors might want to take advantage of Snap's cheap valuation and add the stock to their portfolio now.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Apple. The Motley Fool has a disclosure policy.