Snap Inc (NYSE:SNAP) debuted on Wall Street with a bang. Snap stock soared 44% in its first day of trading. Then it climbed another 10% the following day to above $27 per share.
But it has been nothing but downward-biased volatility since then. I have pointed out before that Facebook Inc (NASDAQ:FB) is aggressively and successfully playing the copycat game, and that seems to be weighing on shares of SNAP. Facebook’s latest roll-out, Instagram Direct, has Snap stock once again in a downward spiral.
It isn’t going to better for Snap, and I actually think the worst is yet to come.
How to Look at Snap Inc as a Company
From a multitude of conversations with millennials and Snapchat/Instagram overlap users, I have gathered that Snap Stories and Instagram Stories can coexist given their different purposes. Snap Stories are viewed as more personable and intimate. It’s for the type of stuff you want to send to a close circle of friends, the inside jokes, and the stuff you don’t want mom or dad to see.
Instagram Stories, unlike Snap Stories, are viewed as more public, given the scale of users on the platform. Instagram Stories are for those broadcasts whose intended audience is nearly everyone you know. In other words, you use it when you want everyone to see what you’re doing. It’s for the universally funny material and the type of stuff you’re okay with Mom and Dad seeing (because they are starting to get on Instagram, too).
It is this very distinction that puts a cap on Snap’s total addressable market (TAM). Snap can’t get too big, or else it loses the very intimacy that makes it valuable to its core millennial demographic.
Right now, Snap is the kids table. That makes it cool. But when mom and dad sit at the kids table, it isn’t so cool anymore.
From this standpoint, I like to look at Snap as a trendy camera company with a limited, 18-34-year-old-user focused addressable market.