In a move that on the surface seems rather inconsequential, Facebook Inc (NASDAQ:FB) has allowed users to seamlessly jump directly from their app to the Instagram profile without having to return to the home screen.
In reality, the implications for this instant switching feature are far deeper, especially for Snap Inc (NYSE:SNAP), which Facebook seems very intent on unseating. The enclosed loop that results from merging FB’s app with Instagram reduces the potential to lose users to other competing mobile apps.
And ultimately, this shows just how serious Facebook is about ensuring the future of Instagram in a world where younger audiences skew towards SNAP. It’s latest move is to leverage its core Facebook asset in an effort to boost Instagram adoption and engagement in this very user group.
Where FB Stands
App Annie data indicates that Facebook holds the number one and two positions in iOS app by worldwide downloads—FB Messenger takes second place. Instagram rank in fourth place, but SNAP owns a larger share of the arguably more desirable 18-24 year old demographic, more desirable at least for a certain segment of advertisers.
Be that as it may, Facebook is a formidable force in digital advertising. eMarketer projects that FB’s share of the domestic market will increase to nearly 20 percent. Meanwhile, SNAP fiscal year forecasts have been trimmed after disappointing earnings numbers. So there’s a bit of a David and Goliath dynamic going on, albeit with what I believe with be a very different outcome.
SNAP’s headwinds are in large part due to Facebook efforts to consolidate its dominant position in mobile. Facebook stock may be up 49% YTD, but they aren’t waiting around to see what competitors come out with. They are charging ahead with their own offence, so to speak. Initiatives to ensure a continued increase in advertising dollars are underway and show great promise. This will make it increasingly challenging to go toe-to-toe with them.
FB Fights Back
Facebook is in no way trying to hide its aggressive tactics to beat SNAP at its own game. Last August the launch of Instagram Stories marked the beginning of a not-so-subtle war against camera company. And earlier this year, dispearring messages alongside reshares and comments became another feature for Instagram users. Very quickly, Instagram Stories has gained over 200 million daily active users (DAUs).
Compare that to SNAP’s 166 million, reported in the first quarter, and it certainly seems like Facebook is making headway in its attempts to take users and advertisers, with the result down the line of rendering SNAP a relic of the past.
Camera effects is another area where Facebook continues to invest significant resources. Future potential monetization is practically unlimited here and offers massive opportunities in a space that advertisers are interested in. The Company’s intention to build an augmented reality platform that’s completely open to developers is going to be great for business to pay their way into participation with the users.
The Bottom Line
While at the moment SNAP may have the edge on younger users, Facebook is executing a multi-pronged offensive that will eventually take users and market share for itself. FB already has demonstrated a keen understanding of targeted advertising and its efficacy, making it an attractive partner for advertisers looking to promote products and brands based on a specific consumer profile.
Facebook’s move to merge its app with Instagram is a small change but not insignificant. The trend is for them to continue to strengthen its position in mobile apps even further and thus, take a larger share of digital ad dollars. This will likely lead to top and bottom line earnings growth, continuing the stock’s ascent upwards.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.
