Buy Snap Inc. (SNAP) Stock, And You Buy an Identity Crisis

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Last week, Snapchat parent company Snap Inc (NYSE:SNAP) delivered some interesting, even if not game-changing, news that unsurprisingly gave SNAP stock a short burst of life.

Buy Snap Inc. (SNAP) Stock, And You Buy an Identity Crisis

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That is, media giant Time Warner Inc (NYSE:TWX) agreed to developed short, original video programming to air exclusively on Snapchat’s messaging platform. Not only will Time Warner split any ensuing revenue with Snap from the venture, Time Warner is paying Snap $100 million up front to consummate the relationship.

SNAP stock advanced (albeit to a modest degree) on the news, as it legitimized what Snap is doing.

Thing is, while it’s an exciting development and does lend credibility to the young social media venue, it’s also alarming to see the near-startup veer this far away from its core business this early in the game.

Is the Time Warner partnership a tacit acknowledgement that messaging — and the associated advertising it facilitates — isn’t driving enough growth on its own?

Identity Crisis

On the off-chance anyone reading this isn’t aware, Snapchat is a high-profile but not-highly used messaging platform akin to the messenger offered by Facebook Inc (NASDAQ:FB), but even more akin to Facebook’s Instagram. The service is best known for allowing users to decorate their pictures shared through the platform with digital stickers.

Perhaps more important (and as SNAP stock owners know all too well), Facebook has pretty much copied every cool thing Snapchat has done with its platform and integrated into Instagram.

The end result? Facebook now boasts 250 million daily Instagram users after less than a year of trying. Snapchat only has 166 million daily users, and has been around since 2011.

That’s not a dig on what Snapchat has or hasn’t become. Toppling a name like Facebook was never going to be easy, if possible at all. Aside from the fact that Facebook has deep pockets, it also has a base of 2 billion monthly users that make for easy converts to the company’s alternative to Snapchat.

Still, for the nascent to be adding scripted video before it’s even figured out how to win at messaging and selling advertisements should worry owners of SNAP stock. Remember, Snap is a company that still insists on positioning itself as a camera company rather than a social media venue even though cameras — well, glasses with forward-facing cameras — make up practically none of its revenue mix. Now it’s a camera company getting into the video business.

Might CEO Evan Spiegel simply be chasing whatever revenue he thinks he can get his hands on? It certainly looks that way, which is an alarming shift this early in the game.

Upside for Snap?

Don’t misread the message — there are some clear upsides to Snap’s deal with Time Warner. The obvious one are immediate revenue and visibility, and less obvious is the user growth that will likely follow.

The most comparable example of such a partnership might be the foray Twitter Inc (NYSE:TWTR) made into the world of video by winning online broadcast rights to a few NFL games last season, and several major league baseball game this season.

Twitter’s growth had literally stagnated around the time 2015 was becoming 2016. Q4 2015’s monthly average user headcount slid sequentially lower for the first time ever after a few quarter of almost imperceptible growth.

Twitter got back on a growth track in 2016, though, initially because voters needed a place to bicker about the heated presidential race, but later because it was a venue to watch football. While Twitter was outbid by Amazon.com, Inc. (NASDAQ:AMZN) for online-streaming rights to those football game this year, there’s no denying the melding of sports and microblogging gave Twitter a more definite purpose. Watching the comments about the game was in many ways as entertaining as the game itself.

Even so, the parallels between Twitter’s sports television and Snapchat’s streaming of scripted Time Warner short-form shows is a distant one.

It remains to be seen how the messaging platform and video will complement one another. It may well turn out users see the video content as coming from a provider that for some unclear reason also happens to offer a messaging service. If that’s the case, those users can find an infinite amount of similar content elsewhere.

That “elsewhere” will soon include (you guessed it) Facebook, which is teaming up with a variety of partners to make some original content for its social media platform.

Looking Ahead for SNAP Stock

Some can’t bring themselves to admit it and other just aren’t able to see it, but the lack of differentiation is the crux of the reason Snapchat isn’t making much (if any) headway against rival Facebook. Everyone has or is getting video. Unlike Amazon or Facebook, though, Snap doesn’t have multiple ways other than video to monetize its user base. That leaves it in something of a catch-22.

It needs more revenue to support the growth it needs to drive more revenue.

Until the company can figure out exactly what it wants to be and how to do one thing very, very well, it won’t be able to do anything well enough to matter. For that reason, Snap stock is lucky it has managed to hold the ground it has managed to hold onto thus far.

A move below its IPO price of $17 is still within easy reach. One stumble could get those dominoes falling.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/buy-snap-inc-snap-stock-and-you-buy-an-identity-crisis/.

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