Facebook App Mimicry Continues to Be a Headwind for SNAP Stock

The first week of October was a wild, weird ride for Snap (NYSE:SNAP). Snap stock posted consecutive declines, only to rally on Friday after an unexpected analyst upgrade.

Facebook App Mimicry Continues to Be a Headwind for SNAP Stock

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That upgrade, however, wasn’t enough to make up for the fears instilled in the investing community after Facebook announced the launch of “Threads,” which is essentially a Snapchat photo-sharing app copycat.

Facebook owns the Instagram app, which is quite popular among millennials and Generation Z – but then, so is Snapchat. Still, competition from a company as big and powerful as Facebook could pose a real threat to Snapchat, and it’s completely understandable if SNAP stock investors are concerned.

SNAP Stock Gets a Surprising Upgrade

Before we delve into the specifics of Snapchat versus Threads, it’s worth discussing the unexpected boost given to the Snap stock price by Morgan Stanley analyst Brian Nowak.

Previously, Nowak had assigned SNAP stock an underweight rating and a low $14 price objective; after the upgrade, Nowak now rates SNAP as equal-weight and his price target is $17.

Snap stock investors were delighted to hear the analyst admitting his firm’s error, as Nowak conceded that, “At a high level, year-to-date we have underestimated Snap’s stronger top- and bottom-line execution and ability to drive growth and upward revisions.”

And indeed, it is encouraging that Snap has shown improvement in terms of EBITDA, increased its ad revenue, and reduced its operating expenses.

Please don’t misunderstand, I’m not recommending that anyone ought to buy SNAP stock merely because of one analyst upgrade; besides, “equal-weight” isn’t a massively bullish rating.

Moreover, with Facebook entering into the photo-sharing fray (which I will address next), the best rating I can give to Snap stock at the moment is “neutral.”

A Lot of “Borrowing” Going on Here

It’s fascinating to study exactly how apps like Instagram and Snapchat capitalize on our most fundamental human needs and emotions.

A research study conducted by Pavica Sheldon and Katherine Bryant of the University of Alabama Huntsville Department of Communication Arts actually found that Instagram use has a direct correlation to its users’ sense of narcissism, especially as it relates to the human desire for popularity and peer acceptance.

Facebook has been profiting from this psychological phenomenon for years, and a number of social-media and app-making companies have borrowed ideas from each other in the quest for max profits.

To say that Facebook “borrowed” features of Snapchat in creating the Threads app, however, would be a gross understatement; it’s been said that imitation is the sincerest form of flattery, but in the case of Threads, this borders on patent infringement.

Not that Snap should have exclusive rights to photo and video sharing, as few would claim that Snap invented or perfected this technology. Still, making a Snapchat clone is typical of how Facebook operates in the market.

As you may recall, in 2016 Facebook’s Instagram basically copied Snapchat’s “Stories” feature, and soon afterwards the company added Stories to both Facebook and WhatsApp. And of course, the disappearing-photos-and-videos feature that Snapchat popularized will be a main selling point for Threads – no surprise there, really.

So once again, Facebook is “borrowing” (and by that, I mean appropriating) a page from Snapchat’s playbook and whether you think it’s fair play or not, the threat to SNAP stock owners is very real. If millennials and Generation Z-ers migrate from Snapchat to Threads, this could pose an existential threat to Snap down the road.

The Takeaway on Snap Stock

I don’t mean to exaggerate the potential impact of Threads on the future course of SNAP stock, and I’m certainly not recommending that stockholders need to dump their shares. However, given Facebook’s undeniable presence in the social media space, I simply don’t feel that it’s the right time to snap up shares of Snap stock.

As of this writing, David Moadel did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2019/10/facebook-app-headwind-snap-stock/.

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