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Snap Inc (SNAP) Stock Snaps Back With Time Warner Inc (TWX) Deal

Original content makes Snapchat a more appealing platform for advertisers

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News that Time Warner Inc (NYSE:TWX) will create in-app streaming programming for the youth-oriented Snapchat messaging platform was enough to briefly lift Snap Inc (NYSE:SNAP) back above its March IPO price on Monday, but shortly after buyers dove for cover. This tells me that it’s going to take more than a blockbuster development deal to give SNAP a lasting lead as rivals like Facebook Inc (NASDAQ:FB) start closing the competitive gap.

Snap Inc (SNAP) Stock Snaps Back With Time Warner Inc (TWX) Deal
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That’s not to say that SNAP has been shut out of the game already. In fact, $100 million in original shows and ads over the next two years is a windfall for the company. It proves that Big Media is eager to tap into this audience and drive 166 million daily users toward more traditional media properties offline.

Wall Street’s valuation models already assumed that a lot of that cash was on the way, however, with analysts factoring about $1.5 billion in revenue expansion between now and the end of 2018. Bringing TWX to the table may accelerate that arc as much as 4%-6%, but the company is already a Top 20 global ad buyer, pumping about $2 billion a year into everybody else’s programming. We should expect at least 2% of that massive budget to shift to SNAP.

The real thrill factor here is the emerging transformation of Snapchat from pure user-generated conversation — the most transient and lowest-quality content around, from an advertiser’s perspective — to something like mass-market programming advertisers can better target and track.

What This Means for SNAP Stock

Think of the difference between structured YouTube channels and the free-flowing cat videos that occupy the lower reaches of the site’s search engine. As the experience and audience become more consistent, parent company Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) can charge higher ad rates.

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