Facebook vs. Snap Inc. – Own goal

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Some of Snap’s woes look self-inflicted.

• Snap appears to be losing key influencers to Facebook not because of a copied service from Facebook, but because Snap is not making it very easy for them to make money.
• Influencers are social media personalities with large numbers of followers that are paid by companies to feature their products in their videos.
• Influencers are incredibly important for marketing to millennials and generation Z meaning that this is something that Snap needs to be all over in order to keep advertisers using its platform.
• Unfortunately, data from Captiv8, the audience tracking service, indicates that influencers are leaving Snap and are finding their way to Instagram.
• During Q2 17, Snap saw a 20% decline in influencers while Instagram saw an 11% jump.
• Influencers are not leaving Snap because there is something better on Instagram but because Facebook and Instagram make it much easier for them to make money.
• Being an influencer is surprisingly hard work and many influencers are struggling to make a good return on their time and investment on Snapchat because Snap does not provide any real support for influencers.
• In many ways influencers are a bit like developers which in order to get going need lots of love and support.
• Facebook and Instagram have understood this and acted upon it while Snap’s management does not seem to care that much.
• Snap seems to be more focused on user to user engagement but this is much harder to monetise.
• The financial results of this stance are clear with the first two sets of results from Snap being a huge disappointment while Facebook is having one of its best years ever.
• Snap badly needs to address this situation as influencers are key for marketing to its key user base but while management favours funky animations and camera-enabled spectacles, I can’t see the financials improving.
• Consequently, I think that Q3 17 and Q4 17 will continue to see the user numbers and the engagement disappoint leading to more pressure on the share price.
• I continue to think that while Twitter is also stagnating, it is in a much better strategic position as it remains unopposed in its space.
• Snap by contrast is under colossal pressure from Facebook which I think could lead to the shares dipping well below my fair value of $12.40 a share.
• If they were to hit $10 or below, I could see acquirors coming out of the woodwork.
• until then there is only pain to had with Snap.