Snap’s Stock Plummets Below $5: Why Citi’s Cut May Signal Bigger Trouble

• Snap fell to a $4.72 intraday low, its deepest dip in years.
• Citi cut the price target from $10 to $6, keeping a neutral rating.
• Q4 revenue beat expectations, but Q1 guidance missed consensus.
• Texas sues Snap for alleged exposure of minors to mature content.
• Retail chatter remains bullish, yet fundamentals suggest caution.

You ignored Snap’s warning signs, and the stock just hit a $4.72 floor.

Why Citi’s $6 Target Highlights Snap’s Advertising Headwinds

Citi’s downgrade is not a whim; it reflects a broader slowdown in brand advertising spend. Snap’s core revenue comes from advertisers paying to reach a young, highly engaged audience. When major brands pull back, the impact ripples through Snap’s top line. The analyst’s model, updated after the Q4 results, reduced the forward multiple, signaling that growth may be flattening faster than previously thought. For investors, a lower price target translates into a tighter upside corridor and a higher probability of a correction.

Snap’s Q4 Earnings: The Numbers Behind the Noise

Snap reported Q4 revenue of $1.72 billion, a 10% year‑over‑year increase and slightly above the consensus estimate of $1.70 billion. The beat was driven by incremental gains in Snap Ads and a modest lift in AR Lens purchases. However, the profit margin remained thin, with adjusted EBITDA hovering around 5% of revenue. The earnings per share (EPS) came in at $0.28, missing the $0.31 consensus, underscoring the pressure on profitability despite revenue growth.

What the Q1 Forecast Means for Your Position

Snap’s guidance for Q1 2025 projects revenue between $1.5 billion and $1.53 billion—below the analyst median of $1.55 billion. The company also expects adjusted core profit of $170 million‑$190 million, implying a profit margin of roughly 11%‑12%, an improvement but still modest. Importantly, the forecast excludes any incremental revenue from the pending Perplexity AI integration, indicating management’s caution pending a commercial rollout agreement. Historically, when Snap has missed guidance, the stock has experienced 12%‑15% short‑term sell‑offs, followed by a rebound if the subsequent quarter delivers better‑than‑expected results.

Legal Storm: Texas Lawsuit’s Potential Impact on Valuation

Earlier this week, Texas Attorney General Ken Paxton filed a lawsuit alleging Snap failed to adequately warn parents about mature content and addictive design elements. The complaint seeks civil penalties and a permanent injunction under state consumer‑protection statutes. While the lawsuit does not yet threaten day‑to‑day operations, the potential for a costly settlement or mandatory redesign of user‑experience flows could erode margins. Comparable cases—such as the 2022 TikTok settlement—have forced platforms to invest heavily in age‑verification tools, driving operating expenses up by 3‑5% of revenue.

Retail Sentiment on Stocktwits vs Institutional Reality

Despite the bearish fundamentals, Stocktwits users have kept the sentiment in the “extremely bullish” zone over the past 24 hours, with high message volume. One user lamented the price drop, while another pumped the idea that the Perplexity partnership could lift Snap to $20 per share. This divergence is typical for high‑growth tech names where retail optimism outpaces institutional caution. Historically, such sentiment gaps have corrected when earnings miss or regulatory news hits, as seen with Pinterest in early 2023.

How Snap’s Perplexity Partnership Could Rewrite the Playbook

Snap announced a strategic partnership with Perplexity, an AI‑driven conversational platform. If the integration reaches a broader rollout, Snap could monetize AI‑enhanced lenses and chat experiences, creating a new revenue stream beyond traditional ads. Analysts estimate the partnership could add $100 million‑$150 million in incremental revenue annually, assuming a 2%‑3% user adoption rate. However, the agreement is still under negotiation; without a clear commercial roadmap, investors should treat the upside as speculative.

Investor Playbook: Bull vs Bear Cases

Bull Case: The Q4 beat proves Snap can still grow revenue in a tough ad market. Successful Perplexity integration and a potential rebound in brand spend could push the stock toward $12‑$15 within 12 months. A “buy‑on‑dip” strategy at sub‑$5 levels offers a risk‑adjusted upside of over 150%.

Bear Case: Continued advertising headwinds, the Texas lawsuit, and an ambiguous AI rollout keep the upside capped at $6. A breach of the $5 level could trigger stop‑loss orders, driving the share price toward $3‑$4 territory. Investors with high exposure should consider hedging with protective puts or trimming positions.

Bottom line: Snap sits at a crossroads where macro ad trends, legal risk, and emerging AI opportunities intersect. The next earnings release and the outcome of the Texas lawsuit will likely set the direction for the rest of 2025.