Snapchat (NYSE:SNAP) Stock Forecast: Undervalued at $7 as AR, Subscriptions Expand

Snap Inc. (NYSE:SNAP) Battles Margin Pressure, Eyes Turnaround With AI, AR, and Subscriptions

Shares of Snap Inc. (NYSE:SNAP) have been volatile through August after a brutal post-earnings selloff drove the stock down toward $7, a level tested multiple times this year. The 26% monthly decline followed disappointing Q2 FY2025 results, where revenue growth slipped to 8.7% YoY and non-GAAP EPS came in short of consensus. North American daily active users fell by 1 million quarter-over-quarter, dragging sentiment further, while weak ad pricing weighed heavily on top-line performance. Despite this, global DAUs rose 8.6% YoY to 469 million, and monthly active users climbed to 932 million, confirming resilience in Snap’s younger demographic base, where 75% of U.S. 13–34-year-olds use Snapchat and open the app more than 30 times per day.

Subscriptions and Spotlight Drive Engagement Despite Weak Ad Pricing

Snapchat+ has quietly become a key growth lever, reaching 16 million paying users, up 64% YoY, and producing an annual run-rate revenue of nearly $700 million. Subscriptions still make up less than 15% of revenue, but the pace of growth signals diversification away from pure ad dependency. Spotlight, Snap’s TikTok competitor, now commands 48% of total viewing time, with engagement up 23% YoY, underscoring a structural shift in how its users consume content. Sponsored Snaps rolled out globally in Q2, delivering 2x higher conversion rates and 5x stronger click-to-convert ratios compared to standard formats, showing that advertiser ROI is improving even as ad pricing struggles. For Q3, management guided 476 million DAUs, revenue of $1.48–$1.51 billion, and adjusted EBITDA of $110–$135 million, aiming to stabilize margins while infrastructure cost per DAU remains between $0.82–$0.87.

AI, AR, and Long-Term Monetization Plans

Management continues to pour resources into AI and machine learning infrastructure, with costs up 11% YoY, compressing gross margin and pulling operating margin down to 3.1%. Still, free cash flow stayed positive at $24 million, highlighting disciplined cost control even amid heavy investment. More than 350 million users engage daily with AR, and Snap is betting on its fully integrated AR computing stack as a long-term differentiator. The launch of AR “Specs” glasses is slated for 2026, which could shift the engagement model further toward immersive hardware. While this is capital-intensive, Snap plans to fund AR development with internally generated cash flows and potential partnerships.

Valuation Compression and Recovery Scenarios

At current levels, Snap trades at just 2.2x forward sales, well below peers like Pinterest (4.7x), reflecting skepticism over profitability. On a non-GAAP basis, SNAP trades at 26.6x FY2025 EPS, falling to 18.4x in FY2026 as consensus projects normalization in spending. Free cash flow estimates point to $340 million in FY2025, ramping to $900 million by 2027, implying a 62% CAGR. If achieved, Snap would be valued at just 13.5x 2027 FCF, while most peers growing cash flow at this rate trade above 20x. At that multiple, Snap’s valuation would expand toward $18 billion, nearly 50% upside from its current $12 billion market cap.

Leadership Pressure and Takeover Speculation

The collapse from its $80 peak in 2021 to sub-$8 territory has put pressure on CEO Evan Spiegel, especially after he rebuffed past takeover bids from Alphabet (around $25/share) and Meta. With the stock worth a fraction of those offers, shareholder frustration has intensified, raising questions about Snap’s independence. The company’s unique grip on a younger audience, expanding subscription revenues, and potential AR hardware ecosystem make it a tempting target for acquirers. Reports have long linked possible interest from Alphabet, Meta, Disney, Amazon, and even Microsoft, as all could benefit from Snap’s demographic reach and ad-tech capabilities. If Spiegel cannot reignite sustainable growth, the depressed valuation leaves the door wide open for renewed acquisition interest.

Insider Activity and Investor Positioning

Tracking Snap insider transactions reveals cautious but consistent selling from executives, reflecting a lack of near-term conviction, though not outright abandonment. Investors remain divided: long-term bulls see discounted entry into an underappreciated social media platform with scalable AR upside, while bears point to persistent GAAP losses (-$263 million in Q2) and ongoing competitive threats from TikTok and Instagram. The technical backdrop highlights a possible “double bottom” near $7, with resistance at $8.85 (50-day MA) and $9.85 (200-day MA). Sustaining above $10 would be the first sign of recovery momentum, while a breakdown below $7 risks retesting multi-year lows.

Buy, Sell, or Hold on NYSE:SNAP

Snap Inc. (NYSE:SNAP) is sitting at a crossroads. The stock has been crushed to the $7 range, wiping out nearly 90% of its value from the 2021 peak of $80. Earnings confirm the near-term challenges: Q2 FY2025 revenue growth slowed to 8.7% YoY, North American DAUs fell by 1 million, and GAAP losses widened to -$263 million. Margins remain under heavy pressure with infrastructure costs up 11% YoY and operating margin down to 3.1%, underscoring how AI and AR investment is delaying profitability.

But valuation tells a different story. At 2.2x forward sales, SNAP trades at its lowest multiple ever, well below Pinterest’s 4.7x despite a stronger DAU base of 469 million and nearly 932 million MAUs worldwide. Subscriptions are scaling fast, with 16 million paying users generating an annual run-rate near $700 million, and Spotlight engagement has surged to 48% of total viewing time with conversions outperforming legacy formats by a factor of five. Analysts expect free cash flow to expand from $340 million in FY2025 to $900 million by 2027, a 62% CAGR. At a peer-multiple of 20x FCF, that would imply an $18 billion valuation, nearly 50% upside from the current $12 billion market cap.

There is also a structural floor under the stock: Snap’s younger demographic dominance makes it a prime takeover candidate. Alphabet once offered roughly $25/share, and renewed interest would be hard for CEO Evan Spiegel to dismiss after years of underperformance. With cash of $2.89 billion against $4.19 billion in debt, Snap is not desperate, but shareholder pressure is intensifying.

The technicals reinforce the risk-reward skew. A double bottom near $7 has formed, with resistance at $8.85 (50-day MA) and $9.85 (200-day MA). Breaking above $10 would flip sentiment bullish quickly. If $7 fails, the downside opens toward multi-year lows.

Considering the deeply discounted valuation, growing subscription base, positive FCF trajectory, and realistic takeover optionality, the stock remains too cheap to ignore despite short-term execution risks. The lack of GAAP profitability keeps volatility high, but the market has already priced in much of the near-term weakness.

Verdict: Buy. At today’s levels, SNAP offers asymmetric upside, whether through reacceleration in AR and subscriptions by FY2026 or as a strategic acquisition target. The $7 zone provides a long-term entry for investors willing to stomach volatility.

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