Can Snap Capitalize On Facebook’s Recent Missteps?

Snap (NYSE:SNAP) has had a relatively difficult couple of weeks, as it faced a user backlash after it launched a redesigned version of its application, causing over a million users to sign an online petition asking the company to revert to the older version of the application. The company has also been contending with some high-profile celebrity user defections from its platform. Moreover, the recent controversy surrounding Facebook’s data leak also appears to have created some negative sentiment around social media stocks in general. However, despite the recent issues, we believe that there are multiple underlying trends that could help the company in the long-run.

We have created an interactive analysis outlining our expectations from Snap in 2018. You can modify the drivers (with blue dots) to arrive at your own price estimate for Snap.

Snap Could Actually Be a Beneficiary of Facebook’s Recent Troubles

Data firm App Annie has indicated that Snap’s download rates have remained quite strong despite the fact that the core user base was unhappy with the redesign. This could be due to the fact that the new app is easier to use for older users, allowing Snap to expand beyond its core demographic of 18 to 24-year-old users. Moreover, Snap could actually capitalize on Facebook’s recent troubles, to a certain extent as users leave Facebook’s flagship social network. It’s possible that Snap could be viewed in a more favorable light considering the ephemeral nature of its core interaction (Snaps) and its greater focus on one-to-one communication, versus Facebook’s more public post/newsfeed format. While Facebook has alternative platforms such as Instagram, which is still growing, the overhang surround the core product could impact its overall growth.

Snap’s Focus On Programmatic

Snap has also been taking significant strides in monetizing its platform via programmatic advertising. Although Snap’s ad prices continued to plummet over the fourth quarter (price per ad impression declined by 25%) with the company shifting from a direct sales model to an automated auction-based model, the company is seeing volumes ramp up, allowing revenues to expand. Programmatic sales will help Snap fill up the inventory being created by its growing audience and increasing ad loads.

Digital Duopoly Grip Over U.S. Market May Be Decreasing

Facebook and Google’s share of the U.S. digital advertising market is expected to drop in 2018, marking the first decline in several years. According to eMarketer, the digital duopoly will together hold 56.8% of US digital ad spending in 2018, down from 58.5% in 2017. Snapchat, on the other hand, is expected to see its overall revenues jump by over 60% this year.  The metric could grow at a faster pace, considering that advertisers could shift some ad dollars away from Facebook to other platforms.

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