When it comes to social media, the storyline keeps playing out how the market expects it to. Snap Inc (NYSE:SNAP) continues to struggle, while Facebook Inc (NASDAQ:FB), and by extension Facebook stock, continues to exercise dominance in the space.
The latest chapter in that story finished last week, with yet another miserable earnings report from Snap. User growth slowed … again. Revenue growth disappointed, in yet another illustration that advertisers are choosing Instagram over Snap.
Operating expenses swelled as the company desperately tries out new ways to engage users. Net loss widened.
It’s practically as clear as day now. Size matters. Snap never had anything proprietary or any sort of defensible value. So FB leveraged its size to do the exact same thing as Snap and deliver it to a larger audience. It worked, continues to work, and will work into the foreseeable future.
Here are the takeaway numbers. Since Snap’s IPO, SNAP stock is down about 50% while Facebook stock is up about 25%.
That is a huge 75 percentage-point spread. And it’s only going to get bigger.
Long FB stock remains the only smart trade in the social media space.
How FB Will Keep Killing Snap
Ask any Millennial what they love about Snap, and they will tell you the filters. The filters are just really good at engaging users and making users look better. After all, in an app based entirely on filming your life, how you look is pretty important.
In this sense, Snap’s last remaining competitive advantage over Instagram is its filters.
But Facebook is going for the jugular there. They just acquired German video-editing start-up Fayteq, which can add or remove objects in videos. The acquisition undoubtedly has huge implications for Facebook’s augmented and virtual reality initiatives, but it also plays an important role in Facebook buffing out Instagram Stories.
FB will likely leverage Fayteq’s technology to add cool new AR/VR enhanced filters to IG Stories. That would be huge, and it would essentially eliminate Snapchat’s last remaining competitive advantage. Instagram wins when Snap becomes less popular because all it really means is higher engagement with IG Stories.
Watch Out for Facebook “Watch” Tab
Meanwhile, Facebook is really pushing the pace on other revenue-generating fronts.
Last week, Facebook announced its new “Watch” tab for mobile apps. The new tab will feature short-form content from partners like A&E Television Networks, Hearst Television, Major League Baseball and Time Inc (NYSE:TIME), among others.
That means that Facebook’s dreams of becoming a streaming content platform like Netflix, Inc. (NASDAQ:NFLX) are finally here. And that couldn’t come at a better time. Also last week, Walt Disney Co (NYSE:DIS) announced they were pulling their content from Netflix and launching their own direct-to-consumer streaming service in 2019.
The era of multiple streaming content platforms is upon us. Over the next several years, streaming platforms will become more and more commoditized. That implies huge room for growth for Facebook as a streaming platform, because size will become increasingly important in this space.
FB has 2 billion active users. With such large reach, Facebook actually has tremendous potential as a streaming platform.
Bottom Line on Facebook Stock
Here’s a fact worth chewing on.
Famed billionaire hedge fund manager Dan Loeb just updated the world on what his fund bought and sold over the past several months. Loeb was once a SNAP bull. But his fund completely exited their position in SNAP in the second quarter. Meanwhile, they boosted their stake in Facebook stock.
Chewing still?
The writing is on the wall. Instagram is dominating Snap. FB’s recent acquisition of a video-editing start-up implies that Instagram will keep killing Snap by getting better filters.
Once Snap is just background noise, the growth story will turn back to the main Facebook platform. Investors will look to streaming content as the next growth leg. That growth narrative appears ready to ramp given recent moves in the streaming video on demand space.
Then there is Messenger and WhatsApp, each of which have 1.2 billion users and neither of which have been monetized.
All in all, Facebook has many chapters still to be written in its growth story. That makes Facebook stock a buy now and hold for the long-run.
As of this writing, Luke Lango was long FB, NFLX and DIS.
