In 2021, Apple changed its privacy rules, which made it harder for application developers to track their users across the internet. That meant social media companies like Snap(NYSE: SNAP) couldn't target users as effectively to sell advertising slots to businesses.
Snap has grappled with that challenge ever since, but it's helping advertisers achieve their goals in other ways. The company created an algorithm called 7/0 Optimization that features a seven-day learning period at a flat rate, with no extra charges if an ad outperforms expectations during that period. Plus, Snap is a leader in augmented reality, which is a unique and engaging way to showcase products to potential customers.
But here's Snap's biggest advantage: SnapChat continues to attract new users, which means it will remain a desirable destination for advertisers. The platform had a record 432 million daily active users during the second quarter of 2024 (ended June 30), and that number has climbed consistently:
Moreover, Snap says it serves 75% of 13-to-34-year-olds in 25 different countries -- so its users are young, which is an attractive feature for advertisers.
Besides innovating on the advertising side, Snap also offers a subscription that gives users a range of benefits, including early access to new features. It's priced at $3.99 per month, and it has over 11 million members so far.
While the Russell 2000 index of small-cap stocks has fallen more than 9% since the end of July, Snap has fared even worse, down more than one-third in the same period. At recent prices, it trades at a price to sales (P/S) ratio of just 2.8, which is near its cheapest level since the company came public in 2017. In my opinion, that doesn't make much sense given the positive trends in its business. That might spell an opportunity for investors.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple. The Motley Fool has a disclosure policy.
