To be honest, Facebook (NASDAQ:FB) stock really only has one major competitor. When looking at the various social media stocks, most of them really have their own niches. Consumers use microblogging Twitter (NASDAQ:TWTR) as a news aggregation site and to voice their own opinions. Pinterest (NASDAQ:PINS) is all about idea generation and shopping. People use Facebook — and its photo-sharing app, Instagram — to connect to their friends and family.
The problem is, that’s exactly what Snap (NYSE:SNAP) does.
The rivalry between FB and SNAP has grown fierce in recent years. And both firms have lost and regained the edge when it comes to user adoption and popularity. However, Facebook may finally be getting the upper hand, and it could be poised to kill off Snapchat once and for all.
Thanks to a new app that’s coming to Instagram, Facebook is directly taking it to SNAP’s bread and butter-: messaging to a small, select group of individuals. By removing its one and only real rival , FB could boost its future advertising revenues and FB stock.
SNAP Is a Threat to Facebook
SNAP has long been a “messaging platform.” Its main attraction is enabling the use of pictures and video as a private vehicle of communication between users. And increasingly, that’s become the “go-to” way for younger people to communicate with each other.
Many members of Generation Z actually don’t have Facebook profiles, while recent reports show that the average Snapchat user spends a ton of time inside the app. Consequently, many marketers are willing to pay to advertise on Snapchat, boosting SNAP stock in the process.
No wonder SNAP CEO Evan Spiegel references “communication” prominently in the firm’s conference calls and press releases.
For Zuckerberg and FB stock, this is a big deal. Facebook has a huge cache of users; 500 million people use Instagram every day, versus about 190 million for Snap. But those users are meaningless if the next generation decides not to become Facebook or Instagram users. Remember MySpace? FB needs to keep users growing and interacting on its various properties to keep the ad revenues growing.
To that end, Facebook has taken SNAP head-on, looking to hit the upstart right in the money maker. Facebook unveiled its own “Stories” on its Instagram app three years ago. That move did seem to work. SNAP’s user growth has fallen off a cliff since the launch of Stories on Instagream and FB’s engagement has kept rising. That is, until recently.
During the first quarter of 2019, SNAP managed to add 4 million users. It followed that up with a big 13 million new users in Q2. Driving that growth have been new messaging functions inside the updated version of its key app. The average Snapchat user sends about 34 chat messages per day and was 64% more likely to send a snap to a friend than post to Stories. So, Facebook may have solved its first problem with Snap,but a new issue is hurting FB and FB stock. .
Facebook Dons Some New Threads
This time, the damage from Facebook’s efforts may be enough to finally win the war. After ceasing work on a new messing app called Direct, FB is now developing a new app called Threads, which is located inside Instagram. According to a new report by The Verge, the messaging app will allow users to communicate using traditional text as well as video and photos. The kicker is that Threads will also share other information like location and direction/velocity of movement. Threads is designed to work with Instagram users’ “close friends” lists.
This is important as those are the features that SNAP fans use the most. As I said before, these features are exactly what’s drawing younger users towards Snap’s platform.
By implementing automated sharing and integrating messaging into Instagram, Facebook could once again regain an edge among younger people. FB has noted that posts and stories by “close friends” spark many more interactions than general posts. And the added benefit of being able to comb through chat/location data could prove to be useful to advertisers. Further, if FB can pull users from SNAP and get them to stay on Instagram, Facebook stock will be boosted even more.
FB Stock Has Potential
While there are no plans to launch Threads just yet, initial tests look good. A full launch could be around the corner. That would be wonderful for FB stock. Threads has the potential to heighten engagement, create more likes and ultimately, provide plenty of user data to advertisers. That should help raise FB’s overall revenues, providing FB stock with a powerful catalyst.
Lately, the firm has seen its pace of revenue growth slow as engagements on its main platform has shrunk and Snap has started to eat its lunch.
For investors, the new app has plenty of potential. If it launches, it could doom Snap and SNAP stock, allowing Facebook to take back its crown.
At the time of writing, Aaron Levitt did not have a position in any stock mentioned.
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