Interest rates soared throughout 2022 and 2023, leaving businesses feeling uncertain. They couldn't be sure about the impact on consumer spending, so many of them braced for lower revenue by slashing costs -- especially on line items like marketing. That hurt companies reliant on advertising to generate revenue, including Meta Platforms, Google parent Alphabet, and Snap (SNAP 3.09%).
Meta and Google have used their scale to great effect and are growing nicely once again after a challenging 18 months between 2022 and the first half of 2023. But advertisers haven't flocked back to Snap's SnapChat platform quite as quickly, and the company generated no year-over-year revenue growth in 2023.
But one metric makes me confident that Snap's recovery is inevitable. SnapChat had a record-high 414 million daily active users in the recent fourth quarter, marking a 10% year-over-year increase. Per the below chart, SnapChat's user base grew in every single quarter throughout this tough period.
A growing user base is a drawcard for advertisers
Advertisers want their products seen on the most popular platforms, which means investing in those consistently attracting new users. Snap not only fits the bill, but it also reaches 75% of 13-to-34-year-olds in more than 25 countries, so its user base skews incredibly young.
That gives businesses the opportunity to reach potential customers at a young age and grow alongside them. Plus, Snap is investing heavily in augmented reality (AR) tools to help advertisers create interactive content that will engage them effectively.
Snap's revenue might be flat right now, but so long as new users continue to sign up, the company will be positioned for a strong recovery especially when interest rates fall. With Snap stock down 86% from its all-time high, now could be a great time to buy.
