When it comes to technology stocks there haven’t been much hotter than Snapchat parent Snap Inc (NYSE:SNAP), which is up 25% over the last month; it’s the 9th hottest tech name according to Finviz.com out of 333 stocks with a market cap higher than $2 billion. Snap stock has had a stellar run.
It’s this momentum that prompted InvestorPlace contributor Luke Lango to remind investors recently that they shouldn’t forget Snap stock because the company’s problems are in the rearview mirror.
Young people, Lango suggests, are the company’s bread and butter and sooner rather than later, will deliver Snapchat’s shareholders great rewards:
“If Snapchat maintains its dominance among the youth demographic and continues to improve its advertising solutions, then the company could transform into a go-to digital advertising platform for companies who do not necessarily need max reach, but instead need max engagement among younger consumers,” Lango wrote June 12. “Consequently, Snapchat could become a critical part of any advertising campaign that wants to reach young consumers.”
It’s hard to argue with his assessment of Snapchat’s core demographic and how the company can leverage this for profitable growth.
The problem is we’ve known this was the case for some time. I said as much a year ago March discussing why Facebook Inc. (NASDAQ:FB) CEO Mark Zuckerberg wanted to buy Snapchat as far back as late 2012:
“Zuckerberg wanted to buy Snapchat to strengthen its teenage audience, which was slowly drifting away from Facebook,” I wrote March 21, 2017. “Something like 26% of American kids aged 18-29 was using Snapchat at the time — a remarkably high capture rate in this all-important demographic.”
The question is why Snapchat has failed to capture the advertising dollars this all-important demographic command?
Instagram and Snap Stock
Facebook announced June 28 that Instagram users can now add music to their stories by finding the perfect clip from their favorite song and dropping it into a video.
How cool is that?
I can remember film class in high school and how my classmates and I thought we were so cool for using the Clash’s son Train in Vain as the soundtrack for the short film we made for our year-end project.
Only a company with Facebook’s deep pockets can roll out something like this that requires music licensing deals, which aren’t cheap, to enable it to deliver for its users.
However, the announcement of this new tool for Instagram Stories’ users wasn’t even the company’s most significant piece of news.
No, the most important tidbit it shared with investors is the fact Instagram Stories now has 400 million daily active users, more than double Snapchat who’ve got just 191 million.
Granted, Instagram’s Stories’ audience is probably a tad older than Snapchat’s, but they’re not nearly as old a demographic as the older crowd using Facebook exclusively.
Regardless of how you slice and dice the user age groups, it’s important to consider that Facebook (main app) only went over 400 million daily active users in 2015; it now has 400 million from Instagram Stories alone with Instagram expected to hit two billion monthly active users within five years.
Here’s Why You Want to Forget Snap Stock
Although the economy is rolling along nicely at the moment, the trade war drums beat louder every day. Snap stock is only a little stronger than it was this time last year.
It’s hard to fathom, but if enough damage is inflicted on the U.S. economy by the president’s attack on its trading partners, we could be in the middle of a recession by the end of 2019.
Which stock would you rather own when the economy and stock market go in the dumper?
My answer would be Facebook.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
