It's been a rough start to the year for Snap (SNAP 27.63%) as its shares have plummeted more than 35% already in 2024. The social media stock hasn't been nearly as hot of a buy as other growth stocks lately.

But has the stock been punished too severely by investors for a single poor earnings report? Let's take a look at Snap's problems and whether this could make for a good contrarian stock to buy right now.

What's wrong with Snap stock?

Snap is a popular social media platform with young adults and teens, but that hasn't been translating into strong results for the business. There are positives for the company, namely that its top line has been increasing and losses have been shrinking. In the fourth quarter, Snap's revenue came in at nearly $1.4 billion and rose 5% year over year. Its net loss of $248.2 million was also 14% lower than the $288.5 million loss reported in the prior-year period.

The problem is that progress may simply not be enough for investors. In the current quarter, Snap is projecting revenue of around $1.1 billion, which would be at least 11% higher year over year, but it's still less than what analysts were hoping for.

A troubling trend is that while Snap has been increasing its number of daily active users (DAUs), its average revenue per user (ARPU) has been going in the opposite direction. DAUs grew 10% last quarter to 414 million, but ARPU fell 5%. In each of the past seven quarters, Snap has reported a year-over-year increase in users but a corresponding decrease in ARPU.

ARPU is simply the company's quarterly revenue divided by its average DAUs for the same period. But the declining ARPU underscores that revenue growth is not keeping pace with user growth, suggesting that simply growing its user base may not be enough to drive Snap's top line higher. With a young user base and regulators trying to crack down on advertising aimed at minors, these problems could become more significant in the future.

The company is still in cost-cutting mode

March 2 marks the seven-year anniversary of Snap going public. While the company has achieved considerable growth over the years with its top line rising from $825 million in 2017 to $4.6 billion in 2023, there hasn't been the same significant progress on the bottom line.

Prior to its latest earnings, the company announced it would be reducing its workforce by 10%. That comes after announcing a 20% reduction in force back in 2022. The positive is the company is still finding ways to cut costs, but investors have been here before. It's hard to trust the company is on a sustainable path to profitability.

Is Snap stock cheap?

Bargain-seeking investors may be tempted to take a chance on Snap because the beaten-down stock has a lot of upside potential if the company is able to deliver improved results. In 2021, the stock hit a peak of more than $83. Today, it's struggling to stay above $10.

The tech stock is trading at just under 4 times trailing revenue and more than 7 times book value. At a market cap of $18 billion, it's one of the smaller social media companies out there. Meta Platforms, which owns Facebook, WhatsApp, and Instagram, has a valuation of more than $1.2 trillion. With daily active people (a metric it uses to count users across all of its applications) of around 3.2 billion, it's trading at approximately $387 per daily user. Snap, by comparison, trades at $43 per DAU.

There are of course other things to consider, not the least of which is that Meta has a profitable business. But at the very least, a case can be made that given its large user base, Snap could be considered a cheap buy right now.