Revenue growth is accelerating again, but challenges remain.

Shares of Snap (SNAP +9.73%) surged higher after its latest quarterly report. Investors cheered as the social media company continued growing its daily active users at a rapid clip and saw strong improvements in ad performance. Additionally, the parent of Snapchat – a camera-centric app popular with younger users – added a new AI (artificial intelligence) partnership that could boost platform engagement and expand monetization avenues down the road.

Given the big move in the stock price, it’s a good time to take a look at shares to see if they’re worth buying today. After all, even though shares rose sharply following the earnings report, they’re still down 30% over the last year and more than 80% over the last five. Is this the time to buy?

Image source: Getty Images.

Accelerating growth

Capturing the company’s momentum, Snap’s third-quarter revenue rose 10% year over year to $1.51 billion – an acceleration from 9% growth in the second quarter. Helping drive Snap’s growth, Snapchat’s daily active users reached 477 million, up 8% from a year ago, and monthly active users climbed to 943 million.

All of this led to improved profitability. The company generated $182 million in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) and $93 million in free cash flow, up from $132 million and $72 million, respectively, in the same quarter last year.

Perhaps the most exciting metric in the quarter, however, was Snap’s direct-response advertising revenue, which increased 8% year over year – a three-point acceleration, compared to the prior quarter.

Snap’s business was particularly strong outside the U.S., highlighting the global appeal of the platform to both users and advertisers. In Europe, advertising revenue grew 12% year over year – six points faster than in the second quarter. In the company’s “rest of world” segment, advertising revenue grew 13%, a 10-point acceleration.

Then, of course, there was the big news of Snap’s $400 million deal with Perplexity to bring an AI answer engine into Snapchat starting in 2026. The costly deal will add a new AI-powered feature for users to engage with and for the company to monetize.

Looking ahead

Helping solidify the company’s momentum, Snap’s guidance looked good. Management guided fourth-quarter revenue to between $1.68 billion and $1.71 billion, implying 8% to 10% year-over-year growth.

Still, there were a few areas in the report that raised eyebrows. First, Snap’s important North America segment was particularly soft, with advertising revenue increasing just 1%. If this fails to improve or, even worse, deteriorates further, it could weigh on Snap’s growth story.

Snap said its daily active users in Q4 may actually decline as it implements platform-level age verification. Also, regulatory actions, like Australia’s recent social media minimum-age bill, are likely to negatively impact user-engagement metrics, management said in the company’s earnings call.

Overall, the quarter showcased impressive progress, with strengths in some areas offsetting weaknesses in others. This dynamic highlights the increasing resilience of Snap’s business as it marches toward 1 billion monthly active users.

Today’s Change

(9.73%) $0.71

Current Price

$8.01

So, is the stock a buy today?

With a fast-growing user base, strong monetization outside the U.S., robust free cash flow, and a significant partnership in AI with Perplexity, there’s a lot to like. Further, the stock’s forward price-to-earnings ratio of 23 isn’t expensive. But given how competitive and fast-moving the social media space is, I’d prefer a larger margin of safety before buying a meaningful position in the stock.

Still, given the popularity of Snapchat with younger users and the company’s growing importance with advertisers globally, I might consider a very small starter position in the stock after the company’s encouraging third-quarter update, just to get my feet wet. If shares fall sharply at some point in the future, I could add some more to the position then, assuming the business prospects look good at the time.