In 2021, Apple tweaked its privacy rules to make it harder for app developers to track their users across the internet. This created a massive problem for social media platforms, because without access to users' browsing data, they could no longer target them accurately for advertising purposes. Millions of people in developed markets like the U.S. use Apple's iPhone to access social media, so this was a gigantic sea change.
Social media giant Meta Platforms, which owns Facebook and Instagram, innovated its way around this challenge. Snapchat parent company Snap (SNAP +1.35%), on the other hand, is still lagging behind, but some of its new tools have successfully boosted conversions for advertisers recently, so its fortunes could be set to turn for the better.
Snap stock remains 91% below its 2021 record high, and it's trading at a rock-bottom valuation. Given some of the company's recent momentum and Snapchat's consistently growing user base, here's why this could be a great opportunity for investors heading into 2026.
Image source: Getty Images.
Snap's innovations are yielding tangible results
Businesses use advertising to generate brand awareness and direct sales, so when they are deciding where to spend their marketing dollars, they typically select channels with the best return on investment. Therefore, Snap's priority is to ensure businesses that advertise on Snapchat yield the highest possible conversion rates.
Late last year, the company introduced Sponsored Snaps, which allow businesses to reach users in their message inbox. The chat function on Snapchat receives a high level of engagement because it's where users talk to their friends, so it has significant potential for advertisers, yet it's an area of the platform that wasn't previously being monetized.
So far, Sponsored Snaps are driving an increase in conversions of up to 22% for businesses using them as part of their broader campaigns, which means users are more likely to take action when they see ads in this format. It's still early, but this is a very positive sign for Snap.
Snap also launched a new advertising suite called Smart Campaign Solutions earlier this year, which is powered by artificial intelligence (AI). It includes Smart Targeting, which uses machine learning to identify high-performing audiences, and ads that have used it so far have seen an average increase in conversions of 8.8%. Smart Budget is another feature, which automatically shifts a business's advertising spend to the best-performing ad sets to maximize outcomes.
NYSE: SNAP
Key Data Points
Users continue flocking to Snapchat
Snap generated $1.5 billion in revenue during the third quarter of 2025 (ended Sept. 30), which was a modest increase of 10% from the year-ago period, but it marked an acceleration from the 9% growth the company delivered in the second quarter three months earlier. It will take some time for Snap's new advertising innovations to contribute to its financial results, but the early signs are positive.
One of the key reasons I believe Snapchat will remain a popular destination for advertisers is because its user base continues to grow, and businesses always want to reach the most potential customers. The platform had a record 477 million daily active users during the third quarter, which was up 7.7% year over year.
Image source: Snap.
I also want to mention Snap's subscription service, Snapchat+, which gives users early access to new features, in addition to exclusive tools to enhance their experience. It had almost 17 million paying members at the end of the third quarter, which was up by a whopping 35% year over year. It also now has annualized revenue of $750 million, so it's starting to make a serious contribution to Snap's financial results.
Snap's valuation is near rock bottom
The steep decline in Snap stock since 2021 has been accompanied by steady revenue growth, which has pushed its price-to-sales (P/S) ratio down to just 2.2 as I write this. That is near the cheapest level since the company went public in 2017.
Data by YCharts.
If the innovations in Snap's advertising platform yield accelerating revenue growth in 2026, then investors might look back on this moment and wish they had grabbed its stock today, given its rock-bottom valuation. It could take longer than a year for new tools like Sponsored Snaps and Smart Campaign Solutions to bear fruit, but as long as Wall Street sees incremental progress, I think there is a good chance Snap stock moves higher next year.
