Facebook Inc (NASDAQ:FB): This could hit FB Stock Hard

Facebook IncCan Facebook Stock Overcome this Challenger?

Notwithstanding the news that Facebook Inc (NASDAQ:FB) wrongly calculated its video metrics, which has sent Facebook stock tumbling down, here comes another story that could hit the social media giant hard and take FB stock further downhill.

On Friday, “Snapchat” (Snap Inc.) rolled out its “Spectacles”, which are its cool sunglasses that can record up to 10 seconds of video at time. These can then be connected to a smartphone if the users want to share videos. Priced at $130.00, the Spectacles are set to generate lot of enthusiasm among Snapchat’s user base.

FB stock had taken a beating last Friday. At the moment, the Spectacles may not look like much but, given the fact that Facebook has made videos the heart of its core strategy and is looking to diversify its revenue stream, Snapchat may turn out to the the biggest threat to the company as yet, because video is the major strength of Snapchat.

Facebook has been after the market share of “YouTube” in the online video space for a long time. Facebook’s CEO Mark Zuckerberg had stated clearly that video will be the heart of Facebook apps and services. FB stock had also been gaining as a result of this focus for the company. (Source: “Facebook Apologizes for Overstating Video Metrics,” The New York Times, September 23, 2016.)

Facebook has been betting big on hardware as well, just like Snapchat is doing now. As covered in Profit Confidential, Facebook has recently bought Nascent Objects, which is a hardware electronics maker unlike the traditional players. This small startup uses 3D printing to create “modular electronics,” which gives users to power to build their own devices.

The company had also acquired Oculus VR, LLC in 2014 for its leadership in virtual reality (VR) technology. Through the “Oculus Rift” headset, Mark Zuckerburg wants to teleport its users to a different world altogether. This combination of hardware and software to build new experiences is where the competition is moving into, and that field holds immense potential.

This is where Snap Inc., the camera company, comes into the picture. The company’s Spectacles could move on to become an integrated viewing software or even an augmented reality (AR) app rather than just sunglasses with a camera.  They are just not like Alphabet Inc’s (NASDAQ: GOOG) “Google Glass.” (Source: “Snapchat’s camcorder goggles are creepy cool and kind of brilliant,” Recode, September 24, 2016.)

After competing aggressively for Facebook’s advertising revenues, Snap Inc. is entering into hardware products that will help users express themselves better. By launching Spectacles and rebranding itself, Snapchat has sent a clear message that the company is targeting a bigger market and ready to take its competitors head-on.

The Bottom Line for FB Stock

It would be interesting to see how Facebook overcomes the challenge of competition from the messaging-app-turned-camera-company that also believes in the power of videos. There is no doubt that Facebook commands a big chunk of social media advertising. But as the war intensifies in the experience-sharing video business, it is time to see what Facebook will do to strengthen its position vis-a-vis the existing and new players. This is what will determine the direction of FB stock.