Snapchat, the popular photo and video app that rose to prominence due to the ability to send self-destructing messages, may be on the verge of self-destructing itself. And Facebook Inc (FB) would be happy to help.
Shares of the world’s most dominant social media company have been on a tear this year; FB stock is up 35% in 2015 while the S&P 500 is down 1%. And now it seems Facebook wants to expand its empire into the world of ephemeral messaging, at Snapchat’s expense.
FB is testing a self-destructing messaging feature in its Facebook Messenger app, which boasts a massive 700 million users. While it is unclear if or when the feature will roll out to all its users — and how much revenue such a feature could generate — it could attract even more users to Facebook Messenger if it proves popular.
Oh, and it could ruin Snapchat.
Facebook Sore Over Snapchat Spurn?
FB famously attempted to purchase Snapchat in 2013 for upwards of $3 billion, but was turned down. Alphabet (GOOG, GOOGL) reportedly made a bid that was also rejected.
At the time, the moves raised eyebrows. Today, Snapchat is somehow worth $15 billion … albeit in the bubbly private tech market.
If that seems insane, that’s because it is. In August, Gawker obtained Snapchat financials that revealed the pitiful state of this “multibillion-dollar” business:
“…between January and November of 2014, the company lost a whopping $128 million while bringing in just $3 million in revenue.”
FB’s decision to leverage its massive Facebook Messenger user base to destroy the money-hemorrhaging app that once spurned its $3 billion advance couldn’t come at a more inopportune time. Not only is Snapchat wildly unprofitable, but major investors are starting to realize that the emperor has no clothes.
Specifically, Fidelity, which holds a chunk of Snapchat for several of its growth-based mutual funds, wrote down the value of its Snapchat investment by a whopping 25 percent in the third quarter.
Bottom Line
With 100 million users, Snapchat definitely has a sprawling audience, but nowhere near the sprawlage Facebook Messenger and its 700 million users boast. Remember, folks, that building a network of such massive girth ain’t easy — it is, in fact, the hardest part by far of this equation.
Not only does FB have that part of the equation solved, it did it seven times better than Snapchat did.
Privately funded tech companies are in an unapologetic bubble mode right now, and Snapchat is one of the leading offenders. It’ll be fun to watch this one pop.
I’m just disappointed I won’t be able to watch it on replay.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
