Snap Stock: Can perplexity AI Partnership Revive Snapchat’s Fortunes?
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Snap Inc. (SNAP), the parent company of Snapchat, is attempting a turnaround after a dramatic decline in its stock price. Shares have plummeted 90% from their 2021 highs, as the social media platform has struggled to compete with rivals like TikTok and Meta’s (META) Facebook, Instagram, and Threads.Though, a recent $400 million deal with artificial intelligence firm Perplexity AI, coupled with better-than-expected third-quarter results, sparked a 15% jump in SNAP stock – though it remains significantly underperforming the broader market this year.
Snapchat’s Struggle for Relevance
Based in Santa Monica,California,Snapchat is known for its ephemeral content – “Snaps” consisting of short videos and images that disappear after 24 hours. The platform also offers a chat function and a curated content feed called Spotlight. Snap currently boasts 477 million daily active users,with a strong appeal to the younger demographic,claiming over 75% of individuals aged 13 to 34 across more than 25 countries utilize the app. Despite this user base, the company’s market capitalization stands at $13.5 billion.
So far in 2024, Snap shares have declined by 24%, even after the recent earnings-related surge. This performance sharply contrasts with the S&P 500, which has risen 13% over the same period.
Financial Performance and Valuation
Snap remains unprofitable, making customary valuation metrics less useful. Instead, investors are focusing on the company’s forward price-to-sales (P/S) ratio, currently at 2.3. This is considered reasonable when compared to Meta Platforms’ higher ratio of 7.8, though Meta’s significant audience and consistent profitability justify that premium.
The company’s third-quarter earnings report offered a glimmer of hope. Revenue reached $1.5 billion, a 10% increase year-over-year, and losses narrowed from $153 million in the third quarter of 2023 to $104 million in the current quarter. While still reporting a loss of $0.06 per share, this exceeded analyst expectations of an $0.11 per share loss.
Beyond the earnings beat, Snap announced a $500 million share repurchase plan over the next 12 months, aimed at offsetting dilution from employee stock awards.User engagement also showed positive trends, with daily average users increasing 8% year-over-year and users creating over 1 trillion Snaps in 2024. spotlight views surged by more than 300%.
However, the most significant progress was the partnership with Perplexity AI, an AI-powered search engine utilizing conversational search technology. According to a company release, the perplexity interface will be integrated into Snapchat by the first quarter of 2026. “This collaboration makes AI-powered discovery native to Snapchat, enhances personalization, and positions Snap as a leading distribution channel for smart agents, laying the groundwork for a broader ecosystem of AI partners to reach our global community,” management stated in a letter to investors.
Analyst Sentiment and Future Outlook
Despite the positive developments, analysts remain cautiously optimistic about Snap’s prospects. Of the 38 analysts covering the stock, 30 recommend a “Hold” rating. Six suggest a “Strong Buy” or “moderate Buy,” while only two issue “Strong Sell” ratings.
at a market open price of $8.08, snap’s stock is near the analysts’ average price target of $9.49, limiting immediate upside potential. Price targets range from a potential 98% increase to a 20% decline. One analyst noted that the Perplexity AI partnership, while promising, is “long overdue” and may provide the momentum Snap needs to achieve profitability. However, a compelling investment possibility remains elusive.
While the partnership with Perplexity AI could be a game-changer, the current data doesn’t support a strong bullish case for SNAP stock.
