Snap Stock Crashed Post-Earnings: Time to Go Bargain Hunting?

Snap's stock just took a nosedive—another earnings season bloodbath. But here's the real question: is this a fire sale or a falling knife?

Wall Street's favorite social media whipping boy delivered another classic 'miss-and-plummet' performance. Revenue growth? Meh. User metrics? Underwhelming. The market's response? A good old-fashioned panic sell.

Buy the dip or bail ship? Let's break it down.

The Bull Case: Snap's still got 400M+ addicted eyeballs scrolling through those disappearing messages. ARPU might be rising slower than a crypto bear market recovery, but it's rising. And let's face it—Wall Street loves punishing this stock only to come crawling back later.

The Bear Reality: Meta's eating Snap's lunch in the ad game, TikTok's stealing its cool factor, and those Spectacles? Still not the next iPhone. Meanwhile, Snap's burning cash faster than a degen on leverage trading.

Bottom line: This isn't your grandfather's value stock—it's a high-risk bet on whether Snap can finally monetize its way out of the doghouse. Just remember: 'cheap' doesn't always mean 'value' in tech land—just ask the bagholders of 2022.

Image source: Getty Images.

Momentum in key areas

Snap reported second-quarter revenue of $1.345 billion, marking a 9% gain from a year earlier. Further, the lifeblood of the company -- user activity -- performed exceptionally well.

Daily active users (DAUs) rose 9% to 469 million, while monthly active users (MAUs) climbed 7% to 932 million. Operating cash Flow reached $88 million, and free cash flow came in positive at $24 million, a notable reversal from the previous year, when the company burned cash. Still, Snap posted a net loss of $263 million (wider than a net loss of $249 million in the year-ago quarter), and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) slid lower on a year-over-year basis to $41 million, underscoring that profitability remains out of reach.

An ad platform glitch -- where auction settings pushed some campaigns to clear at unusually low prices -- weighed on performance early in the quarter. Snap reversed the change mid-period, and management said that advertiser activity is recovering.

One of my favorite data points to support the bull case: On the diversification front, "other revenue" -- primarily from subscriptions like Snapchat+ -- grew 64% year over year, and Snapchat+ subscribers rose roughly 42%, nearing 16 million.

One of the quarter's most promising developments was sponsored Snaps -- video ads delivered directly into users' inboxes. Snap co-founder Evan Spiegel said in the company's second-quarter earnings call that after a user opens a sponsored Snap from their chat feed, they "exhibit significantly higher engagement per full-screen ad view, driving a 2x increase in conversion, a 5x increase in click-to-convert ratios and a 2x increase in website dwell times compared to other inventories. That signals a powerful new lever for monetizing deeply engaged users.

Given the company's fast-growing subscription business, advertising revenue growth trends after the glitch was addressed, and momentum in sponsored Snaps, management guided for continued top-line growth in Q3.

Valuation remains a concern

Despite a handful of promising trends at Snap, valuation remains troubling. The company has long leaned on equity dilution and stock-based compensation to fund growth. While Q2 did include a $243 million share repurchase (30 million shares), its stock-based compensation burden remains high. Full-year stock-based COMP is still pegged north of $1.1 billion, even after recent downward revisions. Keep in mind that we're talking about a company with only a $12 billion market cap. Dilution continues to erode per-share value, even as Snap shows cash generation.

So while the sell-off may feel overdone, the stock hasn't quite yet fallen low enough to make it a bargain. Of course, I could be wrong. A potential bull case lies not in near-term profits but in optionality -- whether Snap can scale newer revenue streams, stabilize pricing, and get to a point where it doesn't need to regularly materially dilute shareholders.

Overall, Snap trades at a valuation that remains questionable given its history of dilution and heavy reliance on noncash compensation. But the emergence of fast-growing subscription revenue, sponsored Snaps, better cash flow, and an engaged user base make it extremely interesting -- worthy of a high spot on any investor's watchlist.