Snap Inc. is scheduled to report its Q1 2025 financial results after the market closes on Tuesday, April 29th. So in today’s article, we’re going to answer a key question on a lot of investors’ minds:
Should you buy Snap stock before the earnings report… or wait until after?
I’ll walk you through the risk-reward tradeoff from both angles, where I think the greatest risks are concentrated, and whether those risks skew more to the downside or the upside. I’ll also show you exactly what I’ll be looking for in the numbers they report, from revenue trends to user growth to cash flow.
Then, I’ll share my proprietary discounted cash flow model which calculates a fair value for Snap based on updated data—along with a forward valuation metric that shows just how discounted the stock may be at current prices.
So if you’re wondering whether Snap is a trap or a massive opportunity heading into earnings, stay tuned—I’m going to break it all down for you.
Fundamental Analysis
Let’s start with the core of Snap’s business—advertising.
In the last quarterly earnings release on February 4th, 2025, CEO Evan Spiegel highlighted a massive improvement: the number of active advertisers on the platform more than doubled in Q4. That’s a critical development. Why? Because Snap generates nearly 100% of its revenue from advertisers.
This increase in advertiser activity was driven by enhancements to Snap’s advertising platform—essentially, they improved ad targeting and performance optimization. If advertisers are seeing a better return on investment (ROI) when running campaigns on Snap, they’re more likely to increase their spend. And that's a very scalable growth lever.
Here’s the big idea: Snap doesn’t need to drastically grow its user base to grow revenue—improving monetization per user can move the needle just as effectively. And that’s where Snap has room to run.
They’re still far behind Meta Platforms in terms of average revenue per user (ARPU). Meta has spent over a decade refining its ad stack, so Snap’s lower ARPU is somewhat expected. But it also reveals how much upside there is if Snap can close even part of that gap.
So, when Snap reports this quarter, one of the most important things I’m looking for is continued momentum in advertiser performance and ROI. If the platform is delivering stronger value to marketers, Snap can accelerate revenue growth—even without growing its user base substantially.
GROWTH VS QUALITY
That said, user growth still matters—especially where the growth is happening.
In Q4, Snap reported a 9% year-over-year increase in daily active users (DAUs), bringing their total to over 453 million. That’s impressive. But here’s the nuance: most of that growth is coming from international markets, particularly regions like Asia-Pacific and Rest of World, where ARPU is lower.
What I’m specifically watching for is whether Snap can grow its user base in North America, and more specifically in the United States. U.S. users generate the highest ARPU, and for Snap, this number has been flat for several quarters. If the company can show even a small uptick in U.S. users, it would signal to the market that Snap still has room to grow in its most lucrative segment.
But the reverse is also true—and this is one of the major risks heading into earnings: if Snap reports a decline in U.S. DAUs, that would trigger serious concerns. Investors would start asking:
“Is this a one-time dip, or are we entering a structural decline in engagement from the most valuable user base?”
A decline could lead to significant multiple contraction, especially if revenue decelerates at the same time. So this is the most important red flag I’ll be watching for in the report.
REVENUE, CASH FLOW & SCALABILITY
In Q4, Snap posted a 14% increase in revenue year-over-year. More impressively, cash flow from operations jumped 40%, reaching $230.6 million, compared to $164 million in the same quarter last year. That’s a big improvement in efficiency and profitability.
This is especially important because Snap’s business model has excellent operating leverage. As they scale, they don’t have to proportionally increase costs to increase revenue. That means more of every dollar earned can eventually fall to the bottom line.
The long-term comparison here is Meta. Now, Snap likely won’t reach Meta’s size or margins—but even if they become just a fraction of what Meta is today, the business model is still very lucrative.
SNAPCHAT+: SUBSCRIPTION REVENUE IS A GAME CHANGER
Let’s shift gears to something that often gets overlooked: Snapchat+. This is Snap’s premium subscription tier, and it’s quietly becoming a meaningful piece of the business.
As of last quarter, Snapchat+ had crossed an annualized revenue run rate of over $500 million. That’s significant. It means Snap is diversifying its revenue mix—moving beyond its reliance on advertising.
Why does this matter?
Because subscription revenue is recurring, stable, and less sensitive to economic cycles. As this segment grows, Snap becomes less vulnerable to downturns in ad spending. That improves the company’s risk profile—and, importantly, it lowers the weighted average cost of capital (WACC) used in valuation models.
VALUATION: MY DCF MODEL + FORWARD P/E
Now let’s talk valuation.
According to my proprietary discounted cash flow model, Snap’s fair value today is $32 per share. The stock is currently trading around $8, which implies massive upside potential if Snap executes even modestly well.
Part of the reason this valuation is compelling is the WACC—currently at 9.2%. If Snap continues to grow subscription revenue and stabilizes its cash flows, we could see that WACC fall over time. That boosts the present value of future cash flows—essentially increasing the intrinsic value of the stock.
I also pulled the forward P/E ratio from FinChat.io, and Snap is trading at just 22x forward earnings. For a company with improving fundamentals, operating leverage, and long-term margin expansion potential, that’s a low multiple. Especially in the context of tech and advertising stocks.
RISKS
Now let’s wrap up by summarizing the two biggest risks heading into earnings:
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Advertiser pullback – If macro uncertainty, such as renewed tariffs or global economic slowdown, causes advertisers to reduce spend, Snap’s top-line growth could stall. Given how reliant they still are on ad dollars, this is a material risk.
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U.S. user decline – This is the one I’m most concerned about. If Snap reports a drop in U.S. daily active users, it could suggest platform fatigue, competition from TikTok or Instagram, or just stagnation. Any negative trend in the U.S. user base could damage investor sentiment quickly.
Conclusion
So here’s my final take: Snap stock is significantly undervalued. I believe the risk is skewed to the upside. My valuation model shows a fair value ~4x higher than the current stock price.
If you're willing to take on a bit more risk, I think buying before earnings is justifiable. But if you want to reduce your risk exposure, consider this strategy:
💡 Buy half of your intended position before earnings, and the other half after, once the results are in.
This way, you gain exposure to potential upside but protect yourself in case the report disappoints.
Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.
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