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What Recent Changes Could Mean for Snap Inc Stock

SNAP stock - What Recent Changes Could Mean for Snap Inc Stock

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After a classic post-IPO beat-down, once red-hot social media company Snap Inc (NYSE:SNAP) is getting desperate to keep its company relevant (and the SNAP stock price afloat).

Amid increasing competition from social media behemoth Facebook Inc (NASDAQ:FB) and its picture-sharing app Instagram, Snap has seemingly lost its edge in the social media world. User growth is moving along at a snail’s pace.

Advertisers aren’t too fond of the platform’s ad products, and revenue growth is decelerating rapidly. Expenses are still ballooning. Profitability is still a long shot. And platform longevity is a big question mark.

Management is searching for answers, in all the places they initially refused to look.

Not only is Snap redesigning its entire app, but the previously insulated app is now opening its borders to Facebook, Twitter Inc (NYSE:TWTR), and others. In a surprise move, Snap just announced that users will be able to share any public snap they see onto the web.

That includes sharing public snaps on Facebook and Twitter.

My first thought: wow.

My second thought: Facebook’s dominance is only growing.

My third thought: SNAP stock might actually get a near-term boost from this move, but the long-term growth narrative remains subdued.

What About the Snap Redesign?

In case you haven’t heard, Snapchat has rolled out its new app redesign in Canada, the U.K. and Australia, and the feedback has been pretty bad.

Users are complaining that the new layout is annoying to navigate, very confusing, and unintuitive. A common complaint is that users aren’t seeing the content they want to see now that all the personal stories are lumped together and algorithmically sorted.

Users are also discovering that with the media content separated out, there really isn’t enough on the media page to keep them entertained.

Snapchat bulls will point to 2006 as evidence that this is nothing new. Back then, Facebook rolled out News Feed to much ire. A decade later, News Feed has become a staple of social media.

But that is an apples to oranges comparison. There are multiple social media alternatives today, whereas there weren’t any back in 2006. If you don’t like the new Snapchat app today, you will simply move over to Instagram, which offers a nearly identical value prop.

But back in 2006, if you didn’t like Facebook’s News Feed, where were you going to go? MySpace?

From this perspective, the negative feedback on the app redesign is a material negative for SNAP stock. I wouldn’t be surprised to some user churn in the near future.

Why Is Snap Opening Its Borders?

Snap is opening its borders to Facebook, Twitter, and others not because they want to, but because they have to.

Snapchat is already maxing out on user growth at under 200 million daily actives. Because of this limited reach, advertisers aren’t terribly attracted to the platform. They would rather just go to Instagram and get those same 200 million users plus 600 million more.

That is why Snap’s average revenue per user growth in North America (23%) lagged Facebook’s average revenue per user growth in North America last quarter (35%), despite Facebook’s unit revenue being much, much larger.

In other words, Snapchat needs more users in order to fuel further growth for SNAP stock. They aren’t getting those users without any outside help, so now they are looking for outside help. The best place to grow product awareness? Facebook, the world’s biggest distribution channel.

Snapchat will likely get a user boost from this content distribution. Facebook users will happen upon a publicly shared snap on Facebook, like what they see and consequently join the platform. It is a near-term positive.

But in the longer-term, this move simply underscores the fact that Snap is not the next Facebook. They are no longer trying to dethrone Facebook as the world’s favorite social media app. They have given up on that fight.

Instead, they are using Facebook to grow their own platform, which just makes Snap another media company using Facebook for unparalleled distribution.

Bottom Line on SNAP Stock?

If you can’t beat em, join em.

Snap can’t beat Facebook, so they are now using Facebook to grow their own platform.

The move is a near-term positive for SNAP stock. But longer term, it underscores the fact that Facebook is Goliath, and Snap is David.

As of this writing, Luke Lango was long FB. 

Article printed from InvestorPlace Media,

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