Engagement Doesn’t Translate to Value for Snap Inc Stock

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Snap stock - Engagement Doesn’t Translate to Value for Snap Inc Stock

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A little over a month ago, yours truly argued that an overhauled Snapchat interface wouldn’t actually solve the underlying problems Snap Inc (NYSE:SNAP) was facing. Chief among those problems? The premise of the platform itself just isn’t that interesting to enough users for very long, certainly not enough to support the SNAP stock price.

It’s not an idea current fans and owners of Snap stock cared to hear. Some of them were quick to say Snapchat’s engagement was just fine thank-you-very-much, and the app’s improvements would ultimately create a more marketable product.

Thing is, some data surfaced accidentally last week that confirms my suspicion voiced in early December. That is, the Snapchat platform continues to struggle drawing a crowd.

SNAP Stock Lacks Chemistry

Just as a refresher in the likely event that you’d forgotten it (or didn’t catch it the first time around), in December I lamented for Snap stock holders the “not-so-small reality that embellishing photographs with digital stickers isn’t all that interesting for very long to most users.”

A reworked interface being put into place at the time was aimed at making Snapchat more compelling like the social networking platforms operated by Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR).

My ultimate conclusion, however, was that “Snapchat has a ‘clear and useful purpose’ problem… [and] until it’s definitively solved, the app’s updates are moot.”

Fast forward to earlier this week. That’s when The Daily Beast Divulged some data it had received regarding the daily usage metrics for most features of the app. Much of it was surprising and not necessarily in a bad way.

Take, for instance, the near-18% increase in the number of daily users the app attracted between April and September of last year. Better still, those users are spending a little more time on Snapchat than they are at Facebook’s comparable Instagram platform.

The former keeps people on board for 34.5 minutes at a time, on average, versus Instagram’s 32 minutes worth of daily stickiness.

By and large though, the numbers were disappointing. Many of the key features that Snapchat had been adding were of little to no interest to users, who mostly rely on the platform as a means of sharing picture and sending text messages.

Only 20% of the platform’s users bothered to look at “Discover” for the timeframe in question, and users were 64% more likely to simply send something to a friend or friends than post something on “Stories.”

It’s a problem simply because all of these new bells and whistles were explicitly intended to attract more eyeballs for advertisers hoping the app will drive new business.

Not everyone was terribly surprised to learn the new-and-improved Snapchat app isn’t actually improved. Jefferies analyst Brent Thill recently-downgraded Snap stock, explaining:

“We continue to have optimism around Snap’s platform, but fundamental execution needs to be shown before we can be more positive on the name. We’ve also spent some time with the updated Snapchat app and see the positives, but also some negatives behind the redesign which could lead to some turbulence in usage and adoption when rolled out.”

That downgrade followed one from Cowen last week, which noted the same general disinterest from advertisers. In fact, a Cowen survey determined that 96% of advertisers would rather run ads on Facebook’s Instagram Stories rather than Snapchat stories.

Part of that preference reflects the sheer size of Facebook’s Instagram audience, while another part suggests Facebook’s age may mean it’s got more seasoned data about who its users are.

Conversely, Snapchat’s newness makes it an unknown quantity for advertisers, and it may never achieve enough meaningful scale to move past the critical tipping point that makes it worth an advertiser’s serious interest.

Bottom Line for SNAP Stock

Don’t read too much into this message. Snap stock isn’t inherently doomed. The Snapchat app, even if under different ownership, will exist in the future. The Snapchat moniker alone is worth too much to abandon now.

I’ll reiterate the same concern I’ve been voicing for a long while now though: the natural tendency in the world of social networking is for most users to gravitate to one platform where everyone can actually “be social” with everyone else.

That’s Facebook, and Instagram, which boasts two billion and 700 million active users, respectively. Snapchat’s has yet to crack the 300 million regular-user mark, and its growth rate has already slowed to a crawl.

The fact that Snapchat’s limited number of users aren’t plugging into the app’s best features only underscores how big the Facebook challenge is.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2018/01/snap-stock-snapchat-users/.

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