Before I begin my write up of Snap Inc (NYSE:SNAP), I want to make a major disclosure: I think Snapchat is completely pointless. Indeed, I find most of what my generation (and younger) does on a daily basis is pointless. Therefore, I find it difficult to stay purely objective about SNAP stock.
My persistent bearishness isn’t just about my gut reaction to whiny millennials and the mainstream media’s obsession with them.
SNAP stock was charming when it was first introduced in the markets. But I genuinely don’t see what Snapchat offers that Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) don’t already provide.
Making cute faces is wonderful, as is “rainbow puke.” But at some point, you have to assume that the young people that use Snapchat will grow a few brain cells. When they do, SNAP stock will encounter what I termed “demographic hell.” Unlike Facebook, Snap Inc. doesn’t cross generations that well. That means Snap must make do with the youngest (and least income-earning) audience.
Beyond the college-age crowd, SNAP doesn’t have much sway, leaving membership growth vulnerable to Facebook. As I mentioned earlier, Snapchat is pointless.
Still, SNAP stock hasn’t completely nosedived. Yes, shares are down 38% year-to-date. Against its initial public offering, Snap lost 11% of market value. But arguably, the lockup expirations issue could have been a lot worse than it was. Since hitting a low of $11.28 on August 14, shares jumped 34%.
Given this robust momentum, can SNAP stock spark a genuine recovery? It’s possible, but it may require embracing the internet’s prurient side.
SNAP Stock Must Embrace the Dirtiness
It’s a long shot and I don’t recommend anyone speculating on Snap based on the R-rated premise. But given that its shtick is transient content, Snapchat is perfect for “mature activities.” And by mature, I’m referring to conduct appropriate for our elected officials.
To be 100% clear, Snap Inc. prohibits intimate-content distribution on their network and has written fairly extensively about it. But any level of “primary research” will reveal that a prolific amount of explicit content exists on Snapchat. In fact, The New York Times reported that traditional advertisers are concerned that their marketing materials may appear next to mature content, thereby creating a misleading association.
But the prurient appeal for Snapchat isn’t primarily about grown-up cinematography. Let’s be real: that’s what Alphabet Inc‘s (NASDAQ:GOOGL) Google platform is for. Instead, The Daily Dot‘s Kristen Hubby argues that the social media network allows participants of said cinematography to engage their fan base in a “real” manner. That is, rather than viewing mature thespians as mechanisms of pleasure, Snap actually humanizes the intimate-portrayal industry.
For SNAP stock to be interesting again, management needs to tap this multi-billion dollar market without being overly conspicuous. Certainly, this strategy runs counter to current and prior policies. However, the company’s straight-up battle against Facebook isn’t going to end well. To have a puncher’s chance, Snap must get a little dirty.
Snapchat must “Grow Up” or Go Home
Historically, the mature-content industry indirectly impacted consumer trends. For example, the now-defunct VHS platform took off thanks to prolific demand for “anatomical movies.” Coincidentally, that demand contributed a small role in the overall failure of Sony Corp‘s (ADR) (NYSE:SNE) Betamax video format.
Admittedly, the idea that Snapchat will (quietly) embrace their “grown-up” members is far fetched. And because it’s a low-probability idea, I’m not planning to put any money at risk with SNAP stock. But without explicit content, Snap has limited upside potential.
As I mentioned previously, the demographics cater to the young, and don’t branch out beyond that group. Facebook stands ready to soak up converts who grow out of their rainbow-puke phase. More critically, advertiser dollars will chase sources with the most traffic. If Snapchat loses momentum in that department, it could be lights out.
Josh Enomoto is long SNE.
