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Snapchat Continues to Enjoy the Support of Teens Per Survey

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Snap Inc.’s (SNAP - Free Report) messaging application Snapchat is the most preferred social networking medium among teens, per Piper Jaffray’s 34th semi-annual Taking Stock with Teens survey.

Reportedly, 47% of the respondents (with average age of 16 years) said that they prefer using Snapchat compared with 12% respondents in the fall 2016 survey.

Snapchat was followed by Facebook’s (FB - Free Report) photo sharing app Instagram, which enjoyed the support of 24% of the respondents while the main social networking platform had 9%. Twitter (TWTR - Free Report) and Pinterest finished at the fourth and fifth spots, respectively with merely 7% and 1% votes in the survey.

However, the company doesn’t enjoy a “unique user base” as 90% of the users also use Instagram, per the survey.

Notably, shares of Snap have lost 32.4% of its value since its listing date of Mar 2, 2017 against 12.1% growth of its industry.

User Engagement

In the last reported quarter, the company recorded 173 million daily active users (DAUs), which increased 21% year over year, driven by growth in North America and European markets.

Notably, in the second quarter, the company’s average revenue per user (ARPU) in North America was $1.97, almost 88% higher than the global average of $1.05.

Per a recent report by Axios, Snap witnessed a 40% increase in user engagement since it unveiled its location based Map feature in June 2017. This bodes well for the company as user growth holds the key to attracting advertisers, which is the primary source of revenues for Snap.

Snap projects users to send over a trillion Snaps this year or nearly 3 billion daily. The company believes that Snapchat users visit the application 20 times a day and spend over 30 minutes daily.

Per eMarketer, this year, Snapchat’s domestic user base is likely to increase 25.8% to 79.2 million driven by a 19.2% increase in users in the 18 to 24 age group. In fact, for the first time, Snapchat is projected to have the highest teen audience (12 to 17 & 18 to 24 cohorts) compared to both Facebook and Instagram, per eMarketer.

However, the market research firm has once again slashed the 2017 U.S ad revenue estimates for Snap from the earlier estimate of $770 million to $642.5 million. In March this year, the research firm had slashed the domestic ad revenue forecast from $805 million to $770 million. On a worldwide basis, Snap’s revenues are now projected to be $774.1 million, down from the earlier projection of $900 million.

Facebook – A Big Threat

Competition from Facebook poses a serious threat to the company. Facebook has started to mimic Snapchat features on its platforms to boost user growth and engagement levels and has also succeeded in making these more popular than Snapchat.

Instagram has seen terrific success and now has over 800 million users. Moreover, Instagram Stories, an unabashed copy of Snapchat’s feature of the same name, has more than 250 million DAUs.

While eMarketer anticipates a 3.4% decline in Facebook’s monthly average user base for the 12 to 17 age group this year, Instagram users in the same age group are projected to increase 8.8%.

Further, eMarketer anticipates Instagram to continue its lead over Snapchat in the next few years with domestic revenues touching $3 billion in 2017. By 2019, Snapchat is projected to earn $2 billion in domestic ad revenues while Instagram is expected to earn more than thrice the amount.

Further, per Piper Jaffray’s survey, nearly 60% of the teens voted Instagram as a better advertising platform while 45% voted for Snapchat. In fact, the respondents chose email over Snapchat for approaching them with advertisements.

Although Snap is undertaking a lot of initiatives to woo users and advertisers to its platform, the company’s lack of popularity in the international quarters and its sole focus on under-30 users are the main concerns. We believe Snapchat needs to focus more on the global market and target other age groups in order to stay ahead in the competition.

Zacks Rank and a Key Pick

Snap has a Zacks Rank #3 (Hold).

A better-ranked stock in the broader technology sector is Yelp Inc. (YELP - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Yelp is currently projected to be 28.7%.

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