Snap Inc (NYSE:SNAP) stock is jumping today as investors are getting excited about the financial prospects of original content on the social sharing platform. Time Warner Inc (NYSE:TWX) signed a $100 million deal with Snap to launch up to 10 original shows per year over the next two years. While SNAP stock originally popped as high as 5% on the news, it’s since settled around a 1.6% gain as of this writing.
On the surface, it’s a good move for Snap Inc. Original content is a secular trend in tech, as market competition forces the biggest players to develop moats.
This is most apparent in the streaming video on-demand space. Both Amazon.com, Inc. (NASDAQ:AMZN) and Netflix, Inc. (NASDAQ:NFLX) are pumping big money into developing original shows and movies. Such moves ensure that the two platforms are different from one another.
But this trend is also very apparent in the social media space. Ever since Instagram launched Stories back in August of 2016, the social media space has been a story largely defined by Facebook Inc (NASDAQ:FB) copying Snap.
And doing it well. Instagram Stories has ramped up in popularity over the past several months while Snapchat’s user growth has slowed. FB stock is up more than 30% year to date. SNAP stock continues to make fresh all-time lows.
Clearly, Snapchat needs to do something different to justify its valuation. And while original content is different, it won’t be a game-changer for the beaten-up stock.
Snap Inc’s Time Warner Deal
Investors hoping that the TWX content deal will turn things around for SNAP are being hopelessly optimistic. At only two years, the deal is pretty small and short. It feels more like a “test out the waters” situation for TWX than a full commitment to SNAP over a long period of time.
And before bulls brush that concern away, they should recall how Twitter Inc (NYSE:TWTR) lost its NFL streaming rights after only one year. In that situation, investors were likewise bullish that live sports streaming would be a turnaround for the struggling platform.
The first season of streaming games went OK, but that didn’t really matter. Amazon came in and outbid Twitter five-fold for streaming rights in the following season. Now Twitter’s NFL turnaround hopes are gone.
That could very well happen to Snap considering it’s going up against Facebook. FB is also making a big push into original content. Like Amazon, Facebook is the much bigger player. That means FB has significantly more reach, which content creators will be attracted to. It also means that FB has significantly more resources to pay content creators.
In time, this could very well play out like the Twitter-Amazon struggle over NFL streaming rights. The winner there was the big guy.
In sum, yes, the TWX deal is a step in the right direction for Snap Inc in finally developing some sort of a moat, but this isn’t an inflection point in Snap’s downward trajectory. The deal is too short in nature to mean much of anything, and competition is too stiff to do much extrapolating.
Fade this rally, and stay away from SNAP stock.
As of this writing, Luke Lango was long FB, AMZN and NFLX stock.
