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Microsoft's AI Driven Sprinkles to Take on Snap's Snapchat

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Reportedly, Microsoft Corporation (MSFT - Free Report) recently launched a mobile app targeting the youth called Sprinkles. It allows users to take pictures and add graphics or captions to them, similar to Snap’s SNAP popular app Snapchat.

At present, the app is only compatible with Apple’s AAPL iOS. Android or Windows based smartphones do not support the app.

We note that the development had no noticeable impact on Microsoft’s shares as they declined 0.26% on Wednesday. Further, we note that, shares of the company have underperformed the Zacks Computer – Software industry over the last one year. While the industry gained 21.7%, the stock registered growth of 20.4%.

The underperformance of the stock could be due to stiff competition in the cloud space and the PC market.

However, we expect the stock to rebound in the rest of 2017 fueled by the company’s initiatives in the “mobile first, cloud first” space.

Advantage Microsoft

Although Snapchat is the most dominant player in the photo app space at present, Microsoft could emerge as a formidable competitor with the introduction of Sprinkles. The app not only lets its users decorate photos with captions, stickers and emojis but also detects faces, age, emotion; discovers celebrity lookalikes and suggests captions leveraging Microsoft’s artificial intelligence (AI) and machine learning technology.

We note that competition in the photo and video sharing app space is intensifying with every passing day. For example, Facebook FB has introduced many Snapchat-like functionalities within its own apps. On the other hand, Apple introduced Clips last month, an app for creating short videos.

However, we believe that Microsoft with its AI technology is well equipped to take on the competition.

As per a Gartner report, of the 432 million smartphones that were sold worldwide in the last quarter, 81.7% had Android, 17.9% had iOS while just 0.3% ran the Windows platform.

By making the app just iOS compatible, Microsoft is losing out on a big market. Maybe it’s just a matter of time when it comes out with the Android and Windows enabled versions to gain better traction in the space.

Zacks Rank

At present, Microsoft carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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