- After taking heavy losses, SNAP stock is finally printing something positive.
- Nevertheless, it is worth considering the heavy competition in play.
- Snap may be left fighting for the youth market, which is fickle.
Though a popular social media platform for Generation Z, Snap (NYSE:SNAP) — the company behind the Snapchat app — has been suffering from a steep drop of relevance following its meteoric rise from the doldrums of 2020. As concerns about the still-ongoing coronavirus pandemic fades, SNAP stock has struggled, especially amid competitive concerns.
The print isn’t very encouraging. On a year-to-date basis through the Mar. 24 session, SNAP stock has dropped over 20%. Over the trailing half-year period, shares have plummeted nearly 50%. Yet, at the same time, recent momentum appears to be setting a new framework, with SNAP up almost 12% over the past five days of trading.
Usually, when shares suffer massive double-digit losses over a short cycle, there is a reason for it; needless to say, it is almost always not a good one. However, it is difficult to ignore the pull that the Snapchat app has with its core young audience. So, how should investors react to the latest for SNAP stock?
SNAP Stock Faces Unprecedented Competition
Per an analysis from Statista.com, “During a fall 2020 survey, it was found that Snapchat was the most important social network for 35 percent of U.S. teens.” In that same survey, Snapchat beat out TikTok, which came in second place at 30% of teenagers. Additionally, TikTok beat out Facebook — which is under the recently rechristened Meta Platforms (NASDAQ:FB) — and Twitter (NYSE:TWTR).
On that basis, SNAP stock seems like a reasonable buy, especially at presently discounted prices. Depending on your risk tolerance, the underlying youth-centric social network could be worth a gamble. Still, the question of brewing competition comes to mind.
To be blunt, the social media ecosystem is incredibly saturated. Over time, you’re probably going to see some consolidation. For instance, consider just how many companies serve different niches.
- LinkedIn — under Microsoft (NASDAQ:MSFT) — serves professional social media users
- Facebook serves personal social media users
- Instagram serves picture-taking social media users
- TikTok serves dancing social media users
- Twitter serves famous social media users
And now you have Truth Social, which is under the Trump Media & Technology Group umbrella, which itself will go public via a business combination with Digital World Acquisition Corp (NASDAQ:DWAC). Truth Social serves social media users who are against censorship.
Put another way, you have almost every core need filled, which would increasingly put pressure on SNAP stock.
As Users Age, Other Platforms Will be More Useful
Don’t misinterpret the above. I’m not saying that Snapchat doesn’t have its place. From the research I’ve done, there is tremendous appeal regarding services involving instant messaging, peer-to-peer content sharing and features such as Stories.
If SNAP stock is largely tied to attributes that attract youth, it may face hiccups down the line. As I mentioned earlier, competitors can always copy or mimic certain features. More critically, the youth market is fickle — and that has been an observation years in the making.
I hypothesize that part of the reason for this fickleness is that as people mature, they realize that prior behaviors just aren’t conducive to future development. Maybe you ate your boogers as a kid — try that as an adult and you might end up institutionalized.
That is an extreme example, I’ll grant that. However, the point is that as one ages, certain platforms are simply more utilitarian. For instance, I don’t really post much of anything on social media these days. However, I do spend quite a bit of time on LinkedIn.
Why? It helps me to connect with people and these connections provide a quantifiable benefit to my brand. I make regular guest appearances on TV because of LinkedIn facilitating a communication hub.
Be Careful With SNAP Stock Discount
I’m not going to say outright that you should definitely avoid SNAP stock. It is your money. Do with it what you will.
However, I would merely take the prudent approach and be careful with the discount presented before you buy. Yes, SNAP stock is intriguing on many levels. At the same time, the competition is getting fierce, with new platforms coming out frequently catering to different interests.
And we haven’t even discussed the decentralized arena — blockchain-based social networks represent another level of competition. That just shows you that you need to navigate this space judiciously.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.