Snap continues to crush Facebook in this key demographic
Breakof (NYSE: SNAP) Snapchat is still the most popular social media platform for American teens, according to Piper sandlerof (NYSE: PIPR) latest biannual survey “Taking stock with adolescents”.
Thirty-one percent of 7,000 respondents preferred Snapchat, up from 30% ByteDanceTikTok and 24% who chose Facebookof (NASDAQ: FB) Instagram. In Piper’s previous survey, 34% chose Snapchat, compared to 29% for TikTok and 25% for Instagram.
These numbers indicate that Snapchat remains comfortably ahead of Instagram, but both platforms could lose ground to TikTok. Let’s see what these changing dynamics could mean for the three companies.
How did Snapchat survive the onslaught of Facebook?
Facebook reportedly tried to buy Snap for $ 3 billion in 2013. Snap walked away, went public in 2017, and is worth $ 92 billion today.
Facebook wanted to buy Snapchat because its own user base was aging. Younger users began to avoid Facebook because their parents used the platform, and Instagram – which he bought for $ 1 billion in 2012 – was still much smaller than his main social network.
After Snap rejected Facebook’s offer, Facebook launched several Snapchat clones and copied many of Snapchat’s defining features (including disappearing messages, stories, and filters) into Instagram and Facebook Messenger. However, Facebook’s standalone Snapchat clones – which included Poke, Slingshot, and Lifestage – all failed and failed to convince teenage users.
Snapchat’s daily active user (DAU) growth briefly slowed in 2018, as Instagram rolled out more Snapchat-like features. But it recovered by expanding its line of Discover videos, adding more augmented reality lenses and in-app multiplayer games, and allowing its users to create their own AR experiences.
As a result, Snapchat’s DAU increased 17% to 218 million in 2019, and then 22% to 265 million in 2020. Its average revenue per user (ARPU) continued to increase, while its annual revenue rose 45% to $ 1.7 billion in 2019 and rose 46% to $ 2.5 billion in 2020 – even as the pandemic temporarily disrupted ad purchases last year.
Snap expects its revenue to grow by around 50% per year over the next several years as it continues to expand its ecosystem and enter the social shopping market with new investments and acquisitions. Instagram could struggle to keep up with this growth if its tighter integrations with Facebook – which include interwoven posts and messages – alienate its teenage users.
But can he keep TikTok at bay?
Snap appears to be keeping Instagram at bay for now, but TikTok remains an imminent threat with more than 700 million monthly active users (MAUs) worldwide. TikTok established the precursor advantage in the short video space by occupying and expanding the niche that Twitter abandoned prematurely by killing Vine in 2016.
Lots of teens are probably using both Snapchat and TikTok, but TikTok is gradually expanding into Snap’s backyard with built-in messaging and social shopping features. Snap is also increasingly similar to TikTok by encouraging its users to submit short videos for cash prizes through its new Spotlight feature.
In other words, it might only be a matter of time before Snapchat and TikTok become direct competitors. Instagram, which launched a TikTok-like feature called Reels last year, already recognizes this threat.
Snap is growing at an impressive rate, but Piper’s investigation indicates that it could still lose its crown to TikTok in the near future. The Biden administration has suspended the Trump administration’s attempts to ban TikTok in the United States, so Snap and Facebook should no longer expect government intervention to slow the growth of ByteDance.
The bottom line
I’m still bullish on Snap, and it’s one of the top 10 stocks in my portfolio. It is expected to stay ahead of Facebook in the teen market for the foreseeable future, but TikTok is a long-term threat that shouldn’t be ignored. Investors should see how Snap compares to TikTok in future Piper’s surveys to see if it can remain the # 1 social network for American teens.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.