Buy Facebook Inc (FB) Stock as It Steals Snap Inc’s (SNAP) Thunder

FB stock - Buy Facebook Inc (FB) Stock as It Steals Snap Inc’s (SNAP) Thunder

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The cat is out of the bag. Facebook Inc (NASDAQ:FB) is copying Snap Inc (NYSE:SNAP), and it is doing it everywhere.

First, it was Instagram Stories. Then it was WhatsApp Status. Now it’s Messenger Day. With each copycat iteration, the chorus of bearish arguments against FB stock gets louder and louder. They are all pretty similar, and they go something like: “Facebook is playing catch-up” or “Facebook isn’t innovating” or “Snap will steal Facebook’s users.”

The market doesn’t seem to be giving those arguments much credence. Facebook stock is up 13% since Instagram Stories launched and is currently at all-time highs. SNAP stock, meanwhile, is 25% off its post-IPO high and continues to make new lows.

FB stock chart

I think the market has it right on this one. Here’s why.

Facebook Stole Snap’s Thunder

One thing Apple Inc. (NASDAQ:AAPL) taught the technology world is that you don’t need to be first to market to succeed. The iPhone was far from the first smartphone to market. Apple let other companies introduce the concept and dabble in prototypes, then Apple leaped on the opportunity when the time was right.

In other words, you don’t have to be first. You just have to be better and have the right timing.

Facebook is bigger, and in the social media world, that is better. The timing is also right for Facebook to be playing copycat.

Scale is what has driven profits and driven FB stock higher. The entire Facebook ecosystem has tremendous scale. The main Facebook app has scale. Messenger has scale. Instagram has scale. WhatsApp has scale. This pervasive scale offers two advantages:

  • Firstly, scale will convert Snap Story users into Facebook users. As this Mashable writer points out, there is a certain broadcasting element to Snap and Instagram Stories. When you blast a picture or video out on social media for 24 hours, you do so with the intent of grabbing as many eyeballs as possible. Snap only has so many eyeballs. Instagram has more than two times as many eyeballs. Messenger has more than six times, and WhatsApp more than seven times.
  • Secondly, scale will allow FB to grab users before they ever even migrate to Snap. Instagram Stories just rolled out internationally, where Snap only has some 90 million daily active users. Messenger and WhatsApp also have large international reach. As Instagram Stories, WhatsApp Status, and Messenger Day launch globally, it will be the first time many of their users have seen the “Stories” concept. To them, there is no copying or mimicking at work. Just a cool new feature on a favorite platform.

The timing of Facebook’s “imitation game” has also been pretty close to perfect.

The concept of ephemeral media messaging, particularly the core concept of Stories, really took off in 2016. Snap saw its daily active user base grow from 107 million at the end of 2015 to 143 million by the middle of 2016.

But then Instagram Stories launched in August 2016, and Snap’s user growth slowed. Snap ended the year with only 158 million daily actives. That means the platform added 36 million users in the first half of 2016 but only 15 million in the second-half.

Meanwhile, in just 25 weeks, Instagram Stories grew to 150 million actives (the same size as Snap).

It looks like Instagram stole Snap’s thunder in August, and rolled with it into the end of the year while Snap more or less flat-lined.

Bottom Line on FB Stock

Facebook is playing copycat, and so far, it’s working. Moreover, it likely will continue to work, and FB will only grow its user base and unit revenue as Snap fades into social media memory.

All in all, FB stock has become a classic “buy-the-dip” situation with a secular growth story and a reasonable — but not great — valuation. At nearly 21 times next year’s consensus earnings estimate, Facebook really isn’t all the expensive. Earnings are actually expected to grow 28% this year and 23% next year, so the stock trades at a discount to its growth. That is rare for a hyper-growth tech company.

Facebook also has more than $10 per share in cash on the balance sheet and generates consistently strong cash flows.

For what it’s worth, I’m not running to buy FB stock here near all-time highs. But I am looking to add to my position on any dips.

As of the writing of this article, Luke Lango was long FB.

Article printed from InvestorPlace Media,

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