Facebook Stock: Did Facebook Inc Just Drop the Ball on Snapchat?

Facebook StockIs This Bad News for Facebook Stock?

By now, even the most steadfast Facebook Inc (NASDAQ:FB) stock bear has probably realized that Facebook is a solid company. Many doubted the social network’s potential. Since its initial public offering (IPO) in 2012, Facebook stock just kept proving the bears wrong. In just over four years, it returned a whopping 217.9%.

However, there is still one major concern surrounding Facebook stock—and the concern doesn’t come from the company itself.

Tech companies rise and fall. When Apple Inc. (NASDAQ:AAPL) and Samsung came out with their smartphones, Nokia disappeared. In the social network business, when Facebook came to power, Myspace died out.

The worst part is that there wasn’t that much Nokia and Myspace could do to prevent their demise. Even if each company kept improving its products and services at top quality, when a totally new concept comes in and changes the industry, well, the old companies are bound to become obsolete.

Right now, Facebook is the most dominant social network in the world. But what if another company comes up with the next big thing in the industry? Will it do to Facebook what Facebook did to Myspace?

Well, that’s always a possibility. But for now, Mark Zuckerberg probably isn’t losing sleep over this.

You see, Mark Zuckerberg started Facebook back in 2004. Since then, there have already been a slew of companies entering the social media business. Some of them also amassed a huge userbase. Some have become publicly traded companies, such as Twitter Inc (NYSE:TWTR). However, those companies did not affect Facebook’s growth in any significant way.

It also helps that Facebook is willing to buy companies that could become huge. In the past several years, it acquired image-sharing app “Instagram” and messaging app “WhatsApp.” Both apps are now near the top of their respective categories in the app store.

Still, not everyone is going to accept Facebook’s offer. I mean, Mark Zuckerberg rejected plenty of offers himself—including Yahoo! Inc.’s (NASDAQ:YHOO) $1.0-billion offer. Now, the company commands a market cap of more than $340 billion.

The company that Facebook failed to acquire was Snapchat, the owner of the app of the same name that can be used to send text, images, and videos that disappear after a few seconds after opening. The Wall Street Journal reported that Facebook tried to buy Snapchat for $3.0 billion in 2013, but Snapchat’s co-founder and CEO Evan Spiegel rejected the offer. (Source: “Snapchat Spurned $3 Billion Acquisition Offer from Facebook,” The Wall Street Journal, November 13, 2013.)

Some consider Snapchat a major threat to Facebook. In June, Andrew Left of Citron Research told Bloomberg that “anyone who has a teen knows that you can’t discount the relevancy of Snapchat” and that Facebook is “losing their relevancy.” (Source: “Citron’s Left Says Facebook Is a Short on Snapchat Competition,” Bloomberg, June 13, 2016.)

However, a new report from Morgan Stanley (NYSE:MS) showed that Facebook stock investors don’t really need to worry about the threat from Snapchat. In particular, Morgan Stanley’s research looked at growth in the company’s daily active users-to-monthly active users ratio—a good measure of engagement level—in the coveted 18–24 and 25–34 age groups. The ratio showed that in both groups, Facebook’s growth was faster than that of Snapchat. (Source: “Morgan Stanley: It Looks Like Facebook Is Shrugging Off Snapchat,” Bloomberg, July 25, 2016.)

The Bottom Line on FB Stock

So, Facebook stock investors don’t really need to worry about Snapchat or any other social network/media/messaging app at the moment. Moreover, despite having a giant userbase, the momentum in Facebook’s user growth is yet to show signs of a slowdown. Most recently, Facebook’s native video ads started producing solid returns on the monetizing front. The company is reporting second-quarter earnings on Wednesday; it’s safe to say that FB stock investors could still have a lot to look forward to.