Back in March, Snap Inc (NYSE:SNAP) was priced around $17 per share, but opened trading at $24 per share. Since then, SNAP stock has settled back to that original level, with unimpressive user growth during the first quarter, furthering the slide.
SNAP isn’t sitting still, though. Just this week, the company announced the “Snap Publisher Tool” — a move that’s meant to make it easier for marketers to import and build creative advertisements in Snapchat — while its self-serve ad manager (announced last month) has officially gone live. The latter will let advertisers put ads on the platform without having to go through an account manager.
Basically, Snap is pivoting away from being highly selective with the advertisers it allows on the platform — potentially an attempt to ramp up monetization by ramping up advertising growth and spend, especially since user growth hasn’t been as sizzling as Wall Street had hoped.
Think of these tools as comparable to Google’s AdWords, notable for their ease of use. Suddenly, even a tiny food blogger with little technical experience could be an advertising client. While there’s a bit higher of a barrier to entry for Snap, the concept is the same.
What This Means for SNAP Stock Investors
I think these moves will indeed help juice the numbers in the next couple quarter as advertisers give the tools — which include features like A/B testing and an easy import format — a whirl. But, don’t mistake such an uptick for an ongoing uptrend. Remember, many tech companies — especially those focused on social media — are really just advertising companies. Snap is no exception.
To grow revenue, advertising companies need three things.
First: user growth. These tools don’t address that at all, and it’s unclear how Snap plans to keep the ball rolling. Second: advertising growth, which is precisely what these tools address. But, the third is the most important, and it’s something these tools don’t at all account for or improve: advertisers need data.
That’s what sets Facebook Inc (NASDAQ:FB) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) apart in the tech world, and it’s what further fuels advertising growth. Facebook and Google alike can dominate ad revenue because they know who you are. Snap has some data on its users, but it’s far from the gold mines of information amassed by its competitors.
All in all, it’s important to consider the full ecosystem and numerous variables for a company like Snap. It’s easy to simplify and think advertising equals monetization, thus advertising tools are inherently good for SNAP stock.
But, in a crowded ad world, it’s data on users that really pays the bills, and Snap’s data simply isn’t as robust as kings like Facebook and Google. That’s not to say the company can’t still be successful and figure out how to make money from its popular disappearing messages. But, the new ad tools are merely baby steps. SNAP stock investors shouldn’t be fooled into thinking otherwise.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.