Snap (SNAP) stock has plummeted approximately 19% in premarket trading following disappointing second-quarter earnings results, primarily due to challenges in its advertising platform and revenue metrics. The company's global average revenue per user (ARPU) came in at $2.87, falling short of analyst expectations of $2.90, despite successfully growing its user base to 469 million daily active users and 932 million monthly active users.

A significant technical issue in Snap's advertising platform caused ad campaigns to clear at substantially reduced prices, leading to slower revenue growth and contributing to a widened net loss of $263 million compared to $249 million in the previous year. The company also faces mounting competition from larger platforms like Meta (META) and TikTok, and is struggling to maintain premium advertising rates and effectively monetize its growing user base in the digital advertising landscape.

What’s Next for SNAP?

Despite these challenges, Snap provided optimistic third-quarter guidance, projecting revenue between $1.475 billion and $1.505 billion, ahead of Wall Street estimates of $1.475 billion. The company's subscription service, Snapchat+, shows promising growth with nearly 16 million subscribers, driving a 64% year-over-year increase in Other Revenue to $171 million. 

CEO Evan Spiegel also announced a strategic reorganization of engineering teams to better support business functions, though this was overshadowed by the departure of Senior Vice President of Engineering Eric Young.

Wall Street is Skeptical on SNAP Stock

While Snap continues to demonstrate strength in user engagement and subscription growth, its year-to-date stock performance has declined by 12%, contrasting sharply with social media competitors Meta and Reddit (RDDT), which have delivered gains of 30.3% and 21.8%, respectively. 

If today’s premarket plunge holds, it would put SNAP stock on pace for its biggest daily drop in just over a year. The shares plummeted 26.9% in a single session on Aug. 2, also triggered by its quarterly earnings release.

The company's efforts to integrate artificial intelligence (AI) technology and improve advertiser performance through features like Sponsored Snaps signal its attempt to stay competitive, though analysts remain skeptical about Snap's ability to demonstrate clear returns on ad spend in an increasingly AI-driven social media landscape.

Overall, Wall Street analysts rate SNAP stock a tepid “Hold,” and the shares finished Tuesday’s session nearly flat with the average 12-month price target of $9.91.

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