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Should Facebook Fret About Snapchat's Rising Ad Revenues?
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Facebook Inc. is synonymous with social media networking. However, Snapchat’s growing popularity is threatening Facebook’s coveted status.
Snapchat, a relatively new entrant in the social media space, has become very popular among teens and millennials primarily because of its “ephemerality”. Photos/videos and text sent to friends via Snapchat disappear after sometime. Moreover, an interactive style of chat developed by the addition of stickers, doodling etc. has really caught the fancy of teens.
Yesterday, in an interview with CNBC, CEO of WPP Plc, the British advertising giant, Martin Sorrell said that in 2016, WPP clients spent over $90 million for advertising on Snapchat, much higher than the revised estimate of $70 million. Consequently, he now expects that total ad spending on Snapchat for 2016 might exceed the market’s estimate of $350 million.
With increasing advertising spend on Snapchat, it is Facebook that might feel the heat, as per Sorrell. He was quoted saying "It does become a threatening alternative to Facebook and I think that's the big opportunity for them. We know Facebook have [has] tried to buy Snapchat a couple of times, we know that they've made product changes as a result of Snapchat's products. I think Facebook is concerned about the potential opposition.”
He further added that the fake news fiasco last year has given Snapchat an edge over Facebook.
Last year, Facebook was accused of suppressing conservative news and doing little regarding the diffusion of fake news on its platform. Fake news dissemination on Facebook has been widely regarded as the primary reason for the surprise victory of Donald Trump in the U.S. Presidential elections. Not just Facebook, Twitter and Alphabet (GOOGL - Free Report) have also been accused of spreading fake stories, resulting in the surprising outcome of the presidential elections.
Should Facebook Worry?
Snapchat has been offering some serious competition in terms of attracting teenagers/young adults to its platform. Notably, this particular group of the demography, teenagers, is most attractive to social media companies for the ad dollars they bring in. With over 150 million daily active users, Snapchat is emerging as an attractive platform for advertisers.
Facebook is no different. Advertising forms the mainstay of the social media giant’s revenues, contributing over 95%. In the third quarter of 2016, ad revenues grew 59% year over year to $6.8 billion while mobile ad revenues were up 70% to $5.7 billion.
Teenagers find Snapchat more appealing and this is not going down well with Facebook. Facebook is trying hard to lure valuable teenage demography to all its platforms. In fact, Facebook has a habit of eliminating competition by making large scale buyouts like WhatsApp and Instagram. Facebook tried to buy out Snapchat as well but CEO Evan Spiegel turned down the offer.
Nonetheless, Facebook and its subsidiary platforms have started to emulate Snapchat features to boost user growth and engagement levels. Per analysts, Facebook can take a chance by unveiling features that are similar to other social media services. This is because if these “inspired” features do not work, it can easily roll them back like it had done previously with Poke, Slingshot and Bolt. After all, platforms like Facebook, Instagram, WhatsApp and Messenger have their own inherent features that will keep their users hooked.
On the other hand, if the features become successful like Facebook Live, inspired heavily by Twitter’s Periscope, it can boost revenues considerably. Facebook is working hard on live video efforts as online video viewing generates high advertising revenues.
Though Snapchat too is capitalizing on video viewing, analysts observe that it is still far away from impacting Facebook’s ad stream. Reportedly, advertising spend on Facebook in 2016 was $1.7 billion, which is almost five times more than the expected ad spend on Snapchat this year. Plus, Snapchat has just 150 million daily users, compared with Facebook’s over 1 billion daily active users.
It is to be noted that though Facebook has adopted a cautious stance on future ad revenues growth prospects, we believe that high rates were expected to stabilize eventually. Also, we remain positive on Facebook for it has ample growth catalysts. Mobile and video along with monetization of its subsidiaries Instagram, Messenger, WhatsApp and Oculus, a huge user base and higher engagement levels will boost its financials, going ahead. The company is also dabbling in AR/VR and AI technologies, which also bodes well for future growth.
However, there is no denying that Snapchat is emerging as a strong competitor. Snapchat is filing for an IPO this year. As per media reports, Snapchat has also started hiring top notch media executives and is also collaborating with media houses like BuzzFeed and Cosmopolitan. Recently, Sony Corp.’s (SNE) Michael Lynton shifted to Snap Inc. as the chairman. Other executives who are reportedly joining Snapchat include Vanity Fair contributing editor Betsy Lack and Time Magazine editor Rick Stengel.
Zacks Rank
At present, Facebook has a Zacks Rank #3 (Hold). In the past one year, Facebook’s shares have generated a return of 34.64%, compared with the Zacks Internet Services industry’s gain of 16.36%.
In the trailing four quarters, Veeva Systems has recorded a positive average earnings surprise of 47.77%.
Zacks' Top 10 Stocks for 2017
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Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>
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Should Facebook Fret About Snapchat's Rising Ad Revenues?
Facebook Inc. is synonymous with social media networking. However, Snapchat’s growing popularity is threatening Facebook’s coveted status.
Snapchat, a relatively new entrant in the social media space, has become very popular among teens and millennials primarily because of its “ephemerality”. Photos/videos and text sent to friends via Snapchat disappear after sometime. Moreover, an interactive style of chat developed by the addition of stickers, doodling etc. has really caught the fancy of teens.
Yesterday, in an interview with CNBC, CEO of WPP Plc, the British advertising giant, Martin Sorrell said that in 2016, WPP clients spent over $90 million for advertising on Snapchat, much higher than the revised estimate of $70 million. Consequently, he now expects that total ad spending on Snapchat for 2016 might exceed the market’s estimate of $350 million.
With increasing advertising spend on Snapchat, it is Facebook that might feel the heat, as per Sorrell. He was quoted saying "It does become a threatening alternative to Facebook and I think that's the big opportunity for them. We know Facebook have [has] tried to buy Snapchat a couple of times, we know that they've made product changes as a result of Snapchat's products. I think Facebook is concerned about the potential opposition.”
Facebook, Inc. Price
Facebook, Inc. Price | Facebook, Inc. Quote
He further added that the fake news fiasco last year has given Snapchat an edge over Facebook.
Last year, Facebook was accused of suppressing conservative news and doing little regarding the diffusion of fake news on its platform. Fake news dissemination on Facebook has been widely regarded as the primary reason for the surprise victory of Donald Trump in the U.S. Presidential elections. Not just Facebook, Twitter and Alphabet (GOOGL - Free Report) have also been accused of spreading fake stories, resulting in the surprising outcome of the presidential elections.
Should Facebook Worry?
Snapchat has been offering some serious competition in terms of attracting teenagers/young adults to its platform. Notably, this particular group of the demography, teenagers, is most attractive to social media companies for the ad dollars they bring in. With over 150 million daily active users, Snapchat is emerging as an attractive platform for advertisers.
Facebook is no different. Advertising forms the mainstay of the social media giant’s revenues, contributing over 95%. In the third quarter of 2016, ad revenues grew 59% year over year to $6.8 billion while mobile ad revenues were up 70% to $5.7 billion.
Teenagers find Snapchat more appealing and this is not going down well with Facebook. Facebook is trying hard to lure valuable teenage demography to all its platforms. In fact, Facebook has a habit of eliminating competition by making large scale buyouts like WhatsApp and Instagram. Facebook tried to buy out Snapchat as well but CEO Evan Spiegel turned down the offer.
Nonetheless, Facebook and its subsidiary platforms have started to emulate Snapchat features to boost user growth and engagement levels. Per analysts, Facebook can take a chance by unveiling features that are similar to other social media services. This is because if these “inspired” features do not work, it can easily roll them back like it had done previously with Poke, Slingshot and Bolt. After all, platforms like Facebook, Instagram, WhatsApp and Messenger have their own inherent features that will keep their users hooked.
On the other hand, if the features become successful like Facebook Live, inspired heavily by Twitter’s Periscope, it can boost revenues considerably. Facebook is working hard on live video efforts as online video viewing generates high advertising revenues.
Though Snapchat too is capitalizing on video viewing, analysts observe that it is still far away from impacting Facebook’s ad stream. Reportedly, advertising spend on Facebook in 2016 was $1.7 billion, which is almost five times more than the expected ad spend on Snapchat this year. Plus, Snapchat has just 150 million daily users, compared with Facebook’s over 1 billion daily active users.
It is to be noted that though Facebook has adopted a cautious stance on future ad revenues growth prospects, we believe that high rates were expected to stabilize eventually. Also, we remain positive on Facebook for it has ample growth catalysts. Mobile and video along with monetization of its subsidiaries Instagram, Messenger, WhatsApp and Oculus, a huge user base and higher engagement levels will boost its financials, going ahead. The company is also dabbling in AR/VR and AI technologies, which also bodes well for future growth.
However, there is no denying that Snapchat is emerging as a strong competitor. Snapchat is filing for an IPO this year. As per media reports, Snapchat has also started hiring top notch media executives and is also collaborating with media houses like BuzzFeed and Cosmopolitan. Recently, Sony Corp.’s (SNE) Michael Lynton shifted to Snap Inc. as the chairman. Other executives who are reportedly joining Snapchat include Vanity Fair contributing editor Betsy Lack and Time Magazine editor Rick Stengel.
Zacks Rank
At present, Facebook has a Zacks Rank #3 (Hold). In the past one year, Facebook’s shares have generated a return of 34.64%, compared with the Zacks Internet Services industry’s gain of 16.36%.
A better-ranked stock in the wider technology space is Veeva Systems Inc. (VEEV - Free Report) , sporting a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the trailing four quarters, Veeva Systems has recorded a positive average earnings surprise of 47.77%.
Zacks' Top 10 Stocks for 2017
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-hold tickers for the entirety of 2017?
Who wouldn't? As of early December, the 2016 Top 10 produced 5 double-digit winners including oil and natural gas giant Pioneer Natural Resources which racked up a stellar +50% gain. The new list is painstakingly hand-picked from 4,400 companies covered by the Zacks Rank. Be among the very first to see it>>