Snapchat – Content blues

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Escaping content is a sign of real problems.

• Snapchat’s move to allow content to be shared outside of its app is a sign that growth remains stagnant in the face of brutal pressure from Instagram and that it needs to expand its audience at any cost.
• The personal stories will all remain in the app but Our Stories, Search Stories and Official Stories can now all be shared via a link that directs the recipient to a video player embedded in snapchat.com.
• This is exactly the reverse of how video evolved on Facebook and I think it’s a worrying sign.
• When Facebook started with video, users posted links to YouTube on their Facebook feeds but as it grew in popularity, users were able to cut out the middle-man and post directly on Facebook.
• This is what allowed Facebook to become the video advertising powerhouse that it is today.
• The reverse appears to be taking place at Snapchat and while the videos are still exclusive to Snapchat, this is a sign that things might change should the app continue to languish in terms of growth.
• If Snapchat begins supporting videos that have been posted on other properties such as YouTube or Instagram, then its ability to monetise the Digital Lives of its users will take a hit.
• The two most important measures of Snapchat’s ability to monetise its users are its Digital Life coverage and active users both of which remain stagnant.
• Snap’s Digital Life coverage is 14% and without major traction in another area like Media Consumption or Gaming, it is unlikely to change for the foreseeable future.
• If it begins allowing videos posted elsewhere to be seen and linked to on its system then its prospects for generating revenue from Media Consumption (10% of the Digital Life Pie) will be very seriously eroded.
• I think that Snap’s active users are not growing because Instagram has successfully copied all of Snap’s user experience innovations and made them easier to access which this move could exacerbate.
• Hence, I think that this further dents its prospects to increase its Digital Life coverage but it may just help its user growth but this will take a long time to materialise.
• Putting this into the context of RFM’s monetisation analysis (see here), it means that once Snap Inc. has monetised its full potential, growth will grind to a halt as it has at Twitter.
• Snap has a core user base and revenue opportunity which, in my opinion, still values the company at around $12.40 a share which is a good 14% below where the shares are today.
• Despite fair value at $12.40, I still think that the stock needs to dip below $10 before I would consider looking at it as it is at this point that potential acquisition interest may materialise.