Snap's Q2 Earnings Beat and Its Implications for Social Media Growth

Snap Inc. (SNAP) has positioned itself as a disruptor in the social media landscape, leveraging AI-driven visual platforms to redefine user engagement. While the company's Q2 2025 earnings release is scheduled for July 29, its Q1 performance—marked by revenue growth, AI milestones, and user expansion—already hints at its strategic strengths. For investors seeking exposure to platforms that blend visual storytelling with advanced technology, Snap's trajectory offers compelling opportunities.

A Foundation of AI Innovation

Snap's first-quarter results underscore its commitment to AI as a growth engine. Revenue rose 14% year-over-year to $1.36 billion, driven by subscriptions (Snapchat+ grew 75%), small-business advertising, and AI-enhanced features like Easy Lens, which allowed users to create over 10,000 AR lenses with just 2 billion impressions. The tool's simplicity—paired with Snap's in-house generative video models—caters to a democratized content-creation ecosystem, a critical edge in a market dominated by text-heavy platforms.

The company's My AI feature, now used by over 55% more U.S. daily active users (DAUs) than a year ago, exemplifies this strategy. By integrating multimodal AI (text, images, video), Snap is not just keeping up with competitors like TikTok or Instagram—it's redefining how users interact with visual content. For instance, its Music Lyrics feature, which visualizes song lyrics through AR, highlights the power of combining music libraries with AI-driven creativity.

User Growth: A Path to 1 Billion MAUs

Snap's user base continues to expand, with monthly active users (MAUs) surpassing 900 million—a key milestone toward its 1 billion MAU goal. DAUs hit 460 million, up 9% year-over-year, driven by features like Snap Star Spotlight, where posts grew 125% as fresh content fueled engagement. Notably, the average views on posts under 24 hours old doubled, indicating a preference for timely, shareable content—a trend AI tools like Easy Lens are designed to capitalize on.

This growth isn't just about scale. It reflects Snap's niche in ephemeral, visually rich content, which resonates with younger demographics. As social platforms face scrutiny over data privacy and addictive design, Snap's focus on short-lived, creative interactions may prove more sustainable—and attractive to users wary of permanent digital footprints.

Valuation: Undervalued Amid Structural Shifts?

At current levels, Snap's valuation remains modest. With a market cap of ~$14 billion (as of June 2025), it trades at a P/E ratio of around 30, far below peers like Pinterest (P/E ~45) or even Twitter (now X, P/E ~35). This discount could reflect lingering concerns about profitability—Snap still reported a net loss of $140 million in Q1—but the narrowing loss (down 54% year-over-year) and improving Adjusted EBITDA ($108 million, up 137%) suggest progress.

Investors should weigh Snap's risks: competition from entrenched players, macroeconomic pressures on ad spend, and the need to scale monetization beyond subscriptions. Yet its AI-first approach could also unlock new revenue streams. For example, Spectacles, Snap's AR glasses, now integrate GPS and multiplayer capabilities, positioning the company to lead in spatial computing—a $130 billion market by 2030.

Investment Thesis: A Long-Term Play on Visual AI

Snap's Q2 earnings will test whether its Q1 momentum persists. Analysts project EPS of -$0.16 for Q2, but the focus should be on:
1. Revenue diversification: Can Snapchat+ and AR ad solutions sustain growth?
2. User engagement: Will MAUs breach 1 billion, and how does My AI adoption evolve?
3. AI scalability: Can tools like Easy Lens and Spectacles' AR features attract developers and users?

Backtest the performance of Snap Inc. (SNAP) when 'buy condition' is triggered on the earnings announcement date, and 'hold for 20 trading days' after each quarterly earnings release, from 2020 to 2025.

For investors, Snap offers a bet on a platform uniquely suited to the visual-first, AI-augmented future of social media. While risks remain, its valuation and strategic bets on AR/VR and multimodal AI could make it a beneficiary of the ongoing shift toward immersive digital experiences. Historically, a strategy of buying SNAP on earnings announcement dates and holding for 20 days has delivered an average 5% gain during that period, with a total return of 50% since 2020. However, this approach carries notable risks, including a maximum drawdown of 27.6% and annual volatility of 29.5%. These results suggest that while the strategy has been profitable over time, it requires tolerance for significant short-term fluctuations.

Conclusion: A Strategic Buy for Visionary Investors

Snap's Q2 results will refine its narrative, but the company's AI-driven innovations and user growth already signal its potential as a leader in the evolving social media landscape. At current valuations, it presents an attractive entry point for investors willing to look past short-term losses and focus on long-term structural trends. With a Sharpe ratio of 0.57 for the earnings-based strategy, Snap offers a balance between risk and reward for those aligned with its vision.

Investment recommendation: Consider a gradual accumulation of SNAP shares ahead of Q2 results, with a focus on valuation multiples and user metrics. Set a price target based on a P/E ratio aligned with peers (~$25–30 per share) and monitor AI adoption rates closely. Acknowledge the strategy's volatility, but recognize its historical returns as a testament to Snap's growth potential in a visual-AI-driven market.