Snap Ups the Ante Against Facebook Stock

snap stockSnap Stock Gains from the Launch of New Feature

Snap Inc (NYSE:SNAP) has had enough of Facebook Inc (NASDAQ:FB) building its clones over and over again. Following last week’s introduction by Facebook of new “Snapchat” features across its apps, Facebook stock had gained and Snap stock had gotten hit. But as we said earlier, Snap Inc needed to launch some new feature or product soon to reassure investors that its success was not just a flash in the pan. And the “camera company” did so on Friday by announcing a search tool for its “Stories” feature. Investors seemed to like it; Snap shares ended Friday’s session with a gain of 1.4%, closing at $22.53.

Snap Inc has introduced a search tool for its most talked about Stories feature. This is to make content easily accessible to more users and thereby grab more eyeballs and engagement time. Using machine learning to analyze information in its myriad posts full of data and pictures, the new search tool shows information to users about the scene at a nearby bar or a local basketball game. Until now, there was no option for users to do this as they only saw the curated features of Stories from the people they followed or whatever Snapchat showed them. (Source: “Snapchat Launches New Search Tool in Quest for More Engagement,” The Wall Street Journal, March 31, 2017.)

Snap Inc has been under fire since it made its debut on the New York Stock Exchange (NYSE) on March 2, gaining a stunning rise of more than 40%. However, Snap stock came under pressure as it did not receive a single “Buy” rating due to the concerns over its weak competitive advantage—the important issue that we had covered when it filed its prospectus. The major problem with all that Snap is doing is that rivals like Facebook can easily copy whatever new features are introduced by Snap and loved by youngsters. This leaves Snap Inc with zero first-mover advantage.

The following chart shows how Snap stock (red/orange) performed as compared to Facebook stock (black) over the past one month.

snap stock chart

Chart courtesy of StockCharts.com

Facebook stock is up almost four percent in the last one month whereas Snap stock is down by about eight percent.

Snap Inc Needs to Be More Agile

Facebook copied Snapchat Stories for its subsidiary, “Instagram,” and the impact was for all to see. Since its launch, the numbers for “Instagram Stories” have been swelling, whereas the growth of Snap users has almost stalled. This has been a major reason for the pessimism surrounding Snap stock and the optimism related to Facebook stock. The fact that Facebook owns hardware businesses and messaging apps as well does not do anything good to Snap Inc’s cause.

The Snapchat parent is still getting a hang of its nascent innings as a publicly listed company in a very competitive landscape. And unless it continues its innovative streak, it may soon find itself in the pages of social media’s history book.

This “ability to innovate” was touted as the foremost reason to invest in Snap stock by a few analysts from the investment banks that were involved in the Initial Public Offering (IPO) of Snap Inc. Once the quiet period had ended, these handful of bullish reports lent some support to Snap stock before the big daddy of social media came along and ruined the party.

Facebook Inc updated its main app with the Snap camera features to make it easier for users to communicate through photos and videos. Users have access to a number of filters that could be applied to photos and videos. So basically, Facebook has Snapchat across its apps.

But now, Snap has added a feature which Facebook cannot copy as it already has it! When a user searches for information on a local sports game, the results will show the related pages, photos, groups, and posts etc. With this new search tool , Snap also opens up new avenues for advertisers.

The new search tool rolled out on Friday in certain cities and will display that content only which users have submitted to “Our Story” on Snapchat. The company declined to say if it is putting ads in the results but it could likely be an important source of monetization for Snap Inc. (Source: Ibid.)

Snap Stock Suffers from Lack of Clarity

It has been exactly a month since Snap Inc debuted on NYSE and the initial euphoria seems to have died down. Evan Spiegel has a lot of challenges going ahead as Snap stock investors expect a lot more from the social network than just being the best camera company.

As mentioned earlier, Snap Inc needs to keep working on introducing new products and features that keep its innovative momentum going.

More clarity is needed as to how the Snapchat parent plans to grow its user base and engagement time in the future, and mint money doing so. The terminology of being a camera company does not help either. Snap stock may be in better shape if it clearly explained its growth plans to investors.

Although the company does enjoy a loyal base as of now, Snap Inc needs to be a little more nimble and agile to remain relevant in the game. And Snap stock investors need to be more patient before there can be more clarity on Snap’s future growth.