Instagram vs Snapchat: Who Is Winning and Where to Invest?

InstagramInstagram vs Snapchat: The Stage Is Set! The Fight Is On!

They say a picture is worth a thousand words. I say, it’s worth at least a billion dollars!

If you don’t believe me, just take a look at the valuations of “Instagram” (owned by Facebook Inc (NASDAQ:FB)) and “Snapchat” (owned by Snap Inc (NYSE:SNAP))—two of the most popular photo-sharing social media apps.

They are the latest craze. We have a whole generation of millennials glued to their smartphones, possessed with a curious urge to publish filtered selfies and food photos 24/7. If you’re paying attention, this trend could be a very interesting idea to make money off.

So how do you invest in Instagram and Snapchat? And which investment is more profitable? 

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To get an answer to these questions and a comparative analysis of Facebook stock vs Snap stock, stay with me as I walk you down memory lane.

A Page From the “Little Red Book”

It’s the year 2012, and Facebook Inc has just gone public. The company is growing by leaps and bounds. New hires are coming in who may have little idea about the company.

They are handed out a little red book. In it are the values that founder and CEO Mark Zuckerberg cherishes, and the little secrets that underscore Facebook’s success.

Flipping through its pages, you stumble upon these words. Written in white ink on a black backdrop is Zuckerberg’s fundamental rule of success: 

“If you don’t create the thing that kills Facebook, someone else will.”

This rule is ingrained in Facebook’s business principles. If Facebook doesn’t create its killer, it acquires or replicates it.

And that’s exactly what happened in 2012. After going public, Facebook made its first move and “acquihired” Instagram.

Around the same time, Snapchat was quietly gaining ground. By 2012, it had raked in 100,000 users. That’s when Facebook noticed and made its first clone of Snapchat, “Facebook Poke.”

Sadly for Facebook, that idea bombed!

By end of 2013, Facebook was panic-stricken. Zuckerberg wasted no time in making a $3.0-billion offer to Snapchat CEO Evan Spiegel, for an app that had yet to make money. But Spiegel was smart enough to decline the offer.

Smart because, years later, Snap Inc would turn out to be Zuckerberg’s worst nightmare.

Instagram vs Snapchat

Today, Facebook and Snapchat are contesting a tug of war. Likewise, investors in both Facebook stock and Snap stock have their horns locked. 

Holding true to its principles, Facebook is doing everything possible to push Snapchat out of the scene. And Instagram is the top weapon in its arsenal—the true Snapchat competitor.

Around Christmas last year, Facebook started adding Snapchat-like features to Instagram. Today, Instagram virtually looks like a Snapchat clone.

But is Instagram really threatened by Snapchat?  To gauge that, take a look at this snapshot of its monthly active users (MAUs).*

Instagram & Snapchat User Statistics

*All numbers are in millions.

(Source: “Number of monthly active Instagram users from January 2013 to December 2016 (in millions),” and “Estimated number of monthly active Snapchat users from 2013 to 2016 (in millions),” Statista, last accessed March 30, 2017.)

Instagram boasts 600 million MAUs, which is double the number of MAUs as Snapchat. In fact, Instagram has just about the same MAUs as Snapchat and “Twitter” combined.

What’s more, Instagram reached a new milestone this month. It now hosts a whopping one million advertisers on its platform. Just so you know, Twitter is estimated to have only about 130,000. There are no numbers for Snapchat, but one can safely assume it is far less than Twitter’s, considering how under-monetized Snapchat is.

So, if Instagram holds clear dominance over Snapchat, why is Facebook scared?

The answer to that lies on the same page where we found Facebook’s secret recipe to success.

Yes, in that little red book!

“The internet is not a friendly place. Things that don’t stay relevant don’t even get the luxury of leaving ruins. They disappear.”

To grasp this profound lesson, forget the absolute MAU numbers for now and focus on Instagram’s and Snapchat’s user growth.

Despite the omnipresence of Facebook and Instagram, Snapchat managed to creep in through the back door. It provided its initial users a peculiar solution to one big problem—that is, what goes on the Internet, stays on the Internet.

Snapchat made available a platform where everything that was shared would self-destruct in 24 hours. This feature attracted an initial cult following from teenagers. From there, Snapchat took off.

Spiegel had hit a jackpot!

Five years later, Snapchat has become “relevant” enough to keep Zuckerberg on his toes. And, since Facebook couldn’t buy it, the only possible way to thwart Snapchat now is to replicate Snapchat.

That’s exactly what’s happening.

Today, all of Facebook’s apps (including its namesake platform and “WhatsApp”) have virtually become Snapchat replicas. 

It’s safe to assume that if Snap stays on its growth trajectory, Zuckerberg will be losing a lot of his sleep.

Now that you have an understanding of the competitive landscape, let’s get down to business. I’m going to analyze the stocks, both of which seem to be gaining momentum.

How to Invest in Instagram?

To invest in Instagram is to invest in Facebook. Facebook has been trading on the NASDAQ for five years now. Below is what the FB stock price chart looks like in 2017. You can see the stock making new highs each passing day.

FB stock chart

Chart courtesy of StockCharts.com

How to Invest in Snapchat?

Snapchat’s parent, Snap Inc, was the most-anticipated initial public offering (IPO) of this year. The company went public in February. It’s listed on the New York Stock Exchange (NYSE) under the ticker “SNAP.” So far, the SNAP stock price chart looks like this. 

Snap stock chart

Chart courtesy of StockCharts.com

The stock jumped over 44% on its opening day. But, like all other IPOs, this one also tanked during the following week. Yet good signs are showing once again. The stock seems to be gaining momentum.

FB Stock vs. SNAP Stock

So now that Instagram and Snapchat are head-to-head in the ring, which one should you be rooting for? I would, hands down, pick Instagram (Facebook Inc) over Snapchat (Snap Inc). And I have three reasons to back my pick.

1. First is profitability. As an investor, you must understand that if a company is not making money, it cannot reward you. That is the problem facing Snap.

The company hasn’t been able to properly monetize its platform yet. This is why you see the bottom-line numbers in red. It is a harsh reality for Snap that Snapchat is not the most sought-after marketing platform for advertisers just yet. The same cannot be said about Facebook, which is now a powerhouse of ad revenue.

2. The second concern is scalability.

According to Snap’s recent filings, over 70% of its revenue comes from its top 10 markets. Snap is still serving a niche in the developed world. Snap’s user base is largely young 18- to 35-year-olds, sitting in high-end pockets of the market with expensive smartphones and high-speed Internet. (Source: “FORM S-1,” U.S. Securities and Exchange Commission, February 2, 2017.)

For Snap to make money and maintain growth, it must keep adding new users from this demographic. Now that could be a towering challenge!

Facebook, on the other hand, is ubiquitous even in the emerging markets. And with projects like “Internet.org,” Facebook has also made its way to the underdeveloped nations.

3. The final concern is diversity.

Facebook is no longer just a social media company; it’s a tech powerhouse. There’s a lot happening at Menlo Park that the mainstream media has missed. From solar-powered planes to virtual reality (VR) headgear to TV set-top boxes and artificially intelligent (AI) assistants, Facebook is finding new avenues of making money.

Snap, on the other hand, still wears the rookie badge. It has only two products: Snapchat and “Spectacles,” both of which have yet to make solid money for the company.

On a cursory look, anybody would want to pick Facebook stock over Snap stock. Woouldn’t you?

Bottom Line on Instagram and Snapchat

When we think of social media, the names that promptly pop up in our heads are Facebook, Instagram, and Snapchat. It’s almost as if Twitter Inc (NYSE:TWTR) and LinkedIn Corp (NYSE:LNKD) don’t exist. It’s understandable. The latter two have taken the backseat. They are both serving their own niches now. The former two, on the contrary, are fighting to take center stage.

2017 could be a defining year for SNAP stock. Snap is aiming for revenue between $500.0 million to $1.0 billion this year. For reference, take note that Facebook managed to hit $1.0 billion in revenue in six years. It looks like Snap might be aiming to beat that record. This should definitely make FB stock investors wary of competition.

Bear in mind that the number of users is, per se, a meaningless metric, if these users are not converting into money. Sometimes, quality matters more than quantity. Aside from a growing user base, the two companies have to ensure that their revenue base also keeps expanding. 

Simply put, both Facebook and Snap have to fight to take the bigger piece of the pie and at the same time ensure that the pie keeps growing in size.

It’s true that, like Snap, two-thirds of Facebook’s revenue also comes from the developed world, yet we cannot turn a blind eye to its gargantuan user base, which is estimated to hit two billion this year. One cannot but agree that the numbers are skewed in Facebook’s favor.

So, for now, I’m not questioning Facebook’s dominance over all of its contemporaries, which is why I’m rooting for FB stock in 2017.