The stock market’s recent slump has taken a toll on many businesses—Snap Inc. (SNAP) among them. This social media powerhouse wrapped up 2024 with impressive momentum, yet its stock has seen an 18% decline since the start of the year. Despite this dip, there’s plenty of reason to be optimistic about Snap’s future. The company’s long-term potential remains appealing, even though the past few years have been quite rocky. Let’s dive deeper to understand why.
### Why Snap Has Struggled to Perform
Snapchat’s parent, Snap, made its public debut in March 2017, but its journey hasn’t been the smoothest. The tech company has faced a trio of significant hurdles. Competitors mimicked its unique ephemeral photo and video format. An iOS update further complicated Snap’s ability to run targeted ads. Additionally, ad spending took a hit amid broader economic challenges, leading to disappointing revenue figures.
These issues have resulted in erratic revenue growth and consistent net losses—hardly a winning formula for success. However, Snap had a relatively strong 2024, especially in its fourth quarter. The company reported $1.6 billion in revenue, marking a 14% increase compared to the same quarter the previous year. Snap also recorded a net income of $9 million, a notable turnaround from the $248 million net loss it reported in Q4 2023. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) climbed 73% to $276 million during that time.
Moreover, Snap’s free cash flow and other critical financial metrics have shown improvement. With business trends pointing upward, Snap’s performance might just continue to shine brightly over the next decade.
### Future Possibilities Over the Next Decade
Snap’s ad-driven revenue model remains central, making user growth on its platform essential. Progress is evident, with Snap’s daily active users (DAUs) increasing by 9% year over year, reaching 453 million in the fourth quarter. The company keeps rolling out new Snapchat features designed to boost engagement, many powered by advanced artificial intelligence.
Take, for example, Snapchat’s “Me in the 60’s” feature, which creates retro-style photos—a hit with over 900 million views in Q4 alone. As long as Snap can maintain an expanding user base, these kinds of engaging projects will make Snapchat an attractive option for businesses aiming to reach consumers. Moreover, Snap has strengthened its advertising tools with machine learning enhancements.
Snap is also moving towards diversifying its revenue streams. A standout effort is Snapchat+, a subscription model that’s gained momentum in recent years. By the end of 2024, its “other revenue” category experienced a 131% year-over-year increase, surpassing an annual run rate of $500 million, largely driven by Snapchat+. This subscription service provides a regular, predictable income stream. Given the current run rate, Snapchat+ is set to play a significant role in Snap’s future performance.
Snap is investing heavily in augmented reality (AR), using generative AI to enhance engagement through AR-based features on the app. These initiatives offer promising growth potential for Snap. With smartphone penetration of just 22% in North America, there’s significant room for user growth. The opportunity is even greater in other regions where penetration is lower.
Despite a wide array of social media options, Snap maintains a unique identity, offering experiences distinct from its competitors. As Snap grows its monthly active users (MAUs) and rolls out new features, both ad revenue and Snapchat+ subscriptions are poised to increase significantly. Consequently, Snap’s profitability should continue to improve.
Although Snap’s IPO hasn’t delivered stellar returns, there’s a renewed potential for a turnaround, driven by a diversified revenue base and innovative AI features that boost engagement and efficiency, especially within its ad platform. An 18% stock drop this year could very well serve as a prime opportunity for those looking to invest for the long haul.
