Facebook Inc (FB) and Google are the clear leaders in online advertising. FB stock reported about $4.3 billion in ad revenue last quarter, while Google’s parent Alphabet (GOOG, GOOGL) posted almost $16.8 billion on its own sites like YouTube as well as third-party sites that use its ad technologies.
Those kinds of numbers are hard to top. So it’s admittedly a bit of a stretch to say a startup valued at only a few billion dollars can go toe-to-toe with the big boys like Facebook and Google. After all, GOOG stock is valued at more than $500 billion while FB stock is over $300 billion.
But in the age of digital disruption, it’s hard to rest on your laurels long and presume your business model is safe.
Google and Facebook stock holders might want to keep an eye on Snapchat as one of the biggest potential threats to future growth.
Facebook Bid for Snapchat, with Good Reason
Here’s the threat in a nutshell: Financial Times just reported that venture-backed messaging startup Snapchat enjoys some 6 billion video views daily, only a bit behind Facebook’s 8 billion daily views. That’s a very small gap, considering the might of FB.
If you recall, Snapchat reportedly rejected a $3 billion bid from Facebook in 2013 — and a $10 billion offer a year later to boot. Increasingly, those decisions are looking justified given the growth Snapchat has continued to enjoy.
The reason for those bids is obvious: Snapchat is growing fast and has great user engagement even if it lacks real revenue let alone any plans for profits just yet. After all, that also was the status of Instagram when CEO Mark Zuckerberg threw $1 billion at the 1-year-old photo sharing app … and now Instagram should deliver a cool $2 billion to the top line of FB stock this year.
Google is undeniably out in front with its dominant YouTube property. But Facebook continues to eat into the “old” way of experiencing the Internet, with users staying largely on Facebook’s site or in its app instead of browsing around like they used to.
And who knows, the short (and theoretically secure) messages of Snapchat may continue to win over consumers at an even faster pace.
Both GOOG stock and FB stock are certainly safe for now. But video advertising remains a hugely contested area of the Internet, given that video spots can often command much better rates than traditional banner ads off to the side of your web page. Who knows what the future holds, and who will dominate this evolving space.
Given the continued brisk growth of Snapchat, the service is at least worth watching — if not making yet another run at for acquisition.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
