Facebook Inc (FB) stock has been on a tremendous run over the past year, jumping nearly 40% as the wider market has barely managed to stay flat. Facebook’s domination in mobile is the primary catalyst behind the rally, and despite its massive size, user growth has managed to easily outpace Twitter Inc (TWTR), which is showing just how hard it is to do what FB is currently doing.
The incredible growth of video on Facebook, as well as the recent decision to focus more on monetizing Instagram, have also helped Facebook stock roar higher. But the bottom line is that billions of users continue to obsessively use Facebook — increasingly via mobile devices — and advertisers are tripping over each other to get a share of those eyeballs.
Snapchat, however, is a problem.
The fast-growing, highly popular video-sharing and messaging app is threatening to suck away users’ time — and advertiser dollars — from FB, the current undisputed king of mobile.
Mark Zuckerberg realizes this, and is making aggressive moves to counter the problem. And Snapchat is fighting right back. It’s a dynamic Facebook stock owners should definitely be aware of.
FB and Snapchat’s Tit-for-Tat
It’s important to put things in context here. First of all, remember that Facebook saw this threat coming years ago. In 2013, FB tried to buy Snapchat for $3 billion. Snapchat CEO Evan Spiegel rejected the offer and sparked ridicule from many in the financial world, only to raise money at a $15 billion valuation two years later.
Today, active Snapchat users spend 25 to 30 minutes a day on the app. I think about today’s app economy in much the same way that Netflix, Inc. (NFLX) CEO Reed Hastings thinks about his company’s competition: Any activity someone does instead of watching Netflix is competition.
FB stock owners would be wise to think the same way. Thirty minutes on Snapchat is 30 minutes users aren’t spending on Facebook or Facebook Messenger.
That’s not the only way Snapchat threatens the Facebook stock price, though. Both companies are heavily focused on video programming, and Snapchat’s Discover feature lets brands create their own video content to distribute through the app. This comes while Facebook makes a conscious effort to court more quality video programming from publishers. Both Snapchat and Facebook claim to pull in 8 billion video views per day.
Both FB and Snapchat are doubling down on sports-related content, and Facebook was close to pulling the trigger on a deal to live-stream Thursday night National Football League games next season before pulling out just days ago.
Facebook’s decision last month to buy the video-filtering app Masquerade was seen as a “shots fired” scenario indicating Facebook’s intention to go on the offensive against Snapchat.
And while a recent Business Insider piece said that Snapchat “responded” to this acquisition by buying Bitstrips, which originally gained popularity through Facebook, it’s unclear to me how that really ends up hurting Facebook or FB stock.
At the end of the day, Snapchat’s true effect on the FB stock price is simply unknown, since we can never know how much more time people would spend on Facebook if Snapchat weren’t around, or how well Zuckerberg could monetize Snapchat if he folded it under Facebook’s wing.
Snapchat is a threat to Facebook’s growth, however, since they both compete for a chunk of the same budgets that advertisers have dedicated to social media and, increasingly, television. Is it an existential threat?
We can start entertaining the idea, however, the day Zuckerberg is forced to field analyst inquiries about Snapchat’s competitive pressures. We aren’t there yet, but don’t write it entirely off.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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