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Why Snap Inc (SNAP) Stock Needs More Than Millennial Power to Thrive

This sought-after demographic could prove difficult to monetize

     

Not long ago, the buzz was that Snap Inc (NYSE:SNAP) represented a major threat to Facebook Inc (NASDAQ:FB). The belief was that FB was losing its innovative edge as well as losing relevance with the younger generation.

Why Snap Inc (SNAP) Stock Needs More Than Millennial Power to Thrive
Source: Snap

But of course, things have turned out differently — and quickly. Since coming public in early March, SNAP stock is off about 41%. Yet during this period, FB stock is up about 20%.

Now it’s important to keep in mind that IPOs often undergo quite a bit of volatility. A prime example is actually FB. For the most part, it took some time for investors to get a sense of the company’s prospects. More importantly, Mark Zuckerberg took swift actions to transform his company to being “mobile first.”

So given that SNAP stock has been seasoned in the market, what can we expect? Perhaps it is an opportunity at current levels?

Well, it is tempting to say “yes.” After all, doesn’t the company have a major share of the valuable millenial demographic? Indeed it does. According to a report from CNBC, about two thirds of millennials use the Snapchat app.

However, there are some nagging issues. First of all, the ad market for this demographic is still in the experimental phase. Let’s face it, the main reason advertisers devote so much resources on millennials is that they are hard to reach!

To put this into perspective, Comscore, Inc. (OTCMKTS:SCOR) CEO Gian Fulgoni believes that video ads should be around 5 to 6 seconds. This is because of the fickle attention spans as millennials generally spend a good deal of their time on mobile devices.

This means that advertisers will likely struggle getting a return on their investments. No doubt, this should be very scary for holders of SNAP stock.

SNAP Stock and User Issues

For Snapchat, the company has not been effective in expanding beyond its base of Millennials. It’s also important to keep in mind that that it has had little traction in international markets.

Such factors help explain the deceleration in the user base. During Q1, there was a 36% increase to 166 million (on a year-over-year basis), which was below the Wall Street consensus of 167.3 million. Consider that — a year ago — the growth rate was at nearly 100%.

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Article printed from InvestorPlace Media, http://investorplace.com/ipo-playbook/snap-inc-snap-stock-needs-more-thrive/.

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