Argus Research has maintained a HOLD rating on Snap Inc. (NYSE: SNAP) following its better-than-expected Q4 2024 earnings but a weaker-than-anticipated revenue outlook for Q1 2025. The company reported 14% year-over-year revenue growth and a doubling of non-GAAP earnings per share (EPS). However, a declining growth rate in ad revenues, stiff competition from Meta and TikTok, and slower user monetization in key markets continue to weigh on its long-term outlook. Snap’s stock fell 8% post-earnings, reflecting investor concerns over slowing momentum in digital advertising.

While the company is working to boost engagement through AI-driven ad solutions and improved content strategies, Argus remains cautious about its ability to sustain long-term growth and profitability, especially in a highly competitive social media environment.

Q4 2024 Earnings Overview
Snap reported solid quarterly results, exceeding consensus estimates on both revenue and EPS.

Revenue: $1.56 billion, up 14% year-over-year.
Non-GAAP EPS: $0.16, doubling from $0.08 in the previous year.
Daily Active Users (DAU): 453 million, up 9% YoY and 2% sequentially.
Monetization per user: Growth in ARPU (Average Revenue Per User) resumed after stagnating in prior quarters.
Despite the strong earnings beat, the company's midpoint revenue guidance of $1.34 billion for Q1 2025 fell short of consensus expectations of $1.35 billion, signaling slower growth ahead.

Key Financial Highlights
Revenue Growth and Advertising Trends
Direct Response (DR) advertising and SMB (Small & Medium Business) ad revenue were the main growth drivers.
North America remains Snap’s largest market, contributing 62% of total revenue, followed by Europe (18%) and the rest of the world (19%).
ARPU (Average Revenue Per User) hit $3.44, marking a third straight quarter of annual growth.
Cost per user declined by 1%, helping improve margins.
Challenges Facing Snap
Competitive Pressure from Tech Giants
Meta’s ad dominance continues to challenge Snap’s ability to gain digital ad market share.
TikTok’s return from regulatory scrutiny in the U.S. diminishes Snap’s potential user acquisition gains.
YouTube Shorts, Instagram Reels, and other short-form content platforms are attracting advertisers away from Snapchat.
Weaker Growth in Mature Markets
North America DAU growth has stalled, fluctuating around 100 million users for the past two years.
European user growth remains weak, increasing just 3% YoY.
The rest of the world (RoW) segment shows the most promise, growing 17% annually, but monetization remains lower than in North America and Europe.
Monetization Struggles
Snap has historically struggled to convert user engagement into sustainable ad revenue growth.
The company’s advertising revenue recovery lagged behind Meta and Google in 2024.
High dependence on digital ad revenue leaves Snap vulnerable to economic downturns and ad budget cuts.
Snap’s Strategic Initiatives
AI-Driven Advertising and Engagement Improvements
Snap is focusing on machine learning and automation to boost ad targeting efficiency.
The company has introduced new ad formats such as Sponsored Snaps and Promoted Places to attract more advertisers.
Creator Monetization Efforts
Snapchat+ subscriptions doubled in 2024, reaching 14 million users.
Creator revenue-sharing initiatives aim to lure top influencers away from rival platforms.
International Expansion
Snap is increasing its investment in localized content and partnerships to grow its user base in developing markets.
It is collaborating with telecom providers and smartphone brands to enhance distribution and engagement.
Financial Strength and Valuation
Cash Position: $3.38 billion in cash reserves.
Debt Levels: $3.61 billion, mostly in convertible senior notes.
Net Debt: $231 million at the end of 2024.
Stock Buyback: Announced a $500 million share repurchase program.
Valuation Metrics
P/E Ratio: Trading at 28.9x forward earnings, higher than industry peers.
Price-to-Sales Ratio: 2.8x, significantly below Snap’s five-year historical average of 12.1x.
Argus' Fair Value Estimate: Between $12 to $20 per share, reflecting mixed growth trends.