Why Snapchat Stock Is Trading Near $6 — And What Wall Street Isn’t Saying

Snapchat has an almost unyielding quality. The app won’t die, won’t fully emerge, and won’t become what Wall Street insists it should be. And the stock does a better job of telling that story than any earnings call could, hovering just over six dollars on a calm Friday in May. Investors appear to have faith in certain aspects of the business. Not the entire thing, though.

Evan Spiegel, who has spent years explaining why patience would eventually pay off, received something akin to vindication in the most recent quarter. Revenue reached $1.53 billion, up 12% from the previous year. The number of daily active users increased by 5% to 483 million. At $233 million, adjusted EBITDA more than doubled. Those are the kinds of numbers that ought to make a beaten-down stock run by any reasonable standard. Rather, after hours, shares fell 7%.

Halfway through the press release, the explanation was hidden. The widely reported $400 million deal between Snap and Perplexity, which was meant to integrate an AI response engine into Snapchat Chat, had quietly collapsed. It was described as friendly by both parties. Wall Street gave it a different name. It’s difficult to ignore how frequently this kind of thing occurs in the tech industry these days: big-name AI deals that are announced with a lot of fanfare only to be canceled a few quarters later when the math stops working.

Walking through Snap’s Santa Monica offices in any year gives the impression that the company has always existed just outside of Silicon Valley’s gravitational pull. Sand Hill Road is farther away from the campus than the beach. In meetings, staff members bring up surf conditions. While Meta chased the metaverse and TikTok captured everyone’s attention, Snap was able to maintain its uniqueness, product focus, and obsession with cameras and lenses thanks to this cultural distance. However, it has also prevented Snap from ever reaching its full potential.

The more difficult tale is told by the advertising industry. Due to what the company described as a $20 to $25 million hit from Middle East geopolitical tensions in March, ad revenue only increased by 3% to $1.24 billion. Large advertisers in North America are still wary. Smaller companies are investing more and direct-response campaigns are performing well, but the whales, who are the ones who actually change the numbers, stay away. In the meantime, Snap’s target audience—younger people—is being eaten away by Instagram and YouTube.

Strangely, there are no advertisements at all in the brighter spot. The new Lens+ tier, Memories Storage, and Snapchat+ subscriptions all saw an 87% increase in revenue to $285 million. That is a significant change in direction. Even if it doesn’t address the larger issue, a messaging app that persuades almost 17 million users to pay a monthly fee for cosmetic features and additional storage indicates something enduring about the user base. Spiegel frequently brings up Specs, the AR glasses project, with the cautious optimism founders employ when they’re placing bets on the company but are reluctant to express them publicly.

Years ago, when the cars were good but the books weren’t, Tesla faced similar skepticism. Snap isn’t quite there. The user base is expanding once more following a difficult period, the losses are less, and the cash flow is real—$286 million in free cash this quarter. However, the stock has dropped 26% in the last 12 months, and the next step is for advertisers to return, which they might or might not do.

As this develops, it seems more likely that Snap will succeed than its stock price indicates. The outcome of the upcoming quarter and the subsequent one will determine whether or not that is significant.