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Facebook to Gain Edge Over Snap From Monetization of Stories

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Facebook’s (FB - Free Report) rivalry with Snap’s (SNAP - Free Report) Snapchat has intensified with the social media giant working on monetizing Stories — a slideshow of photos and videos that vanishes after 24 hours — on its main platform.

Per TechCrunch, Facebook Stories hit 150 million daily active users (DAUs) so far in May. Facebook is testing video ads of 5 to 15 seconds duration in the United States, Mexico and Brazil. Further, the company plans to lure advertisers by sharing more metrics regarding the performance of Stories.

However, this is definitely not good news for Snap, which has been struggling hard to keep the interest of users and advertisers alive. Notably, the redesign of the Snapchat app, which garnered significant negative response, had an adverse impact on the company’s ad business, which remains the primary contributor.

This is mainly due to the fact that Snap operates in an environment where competition for ad revenues is highly intense. Apart from Facebook, advertisers are more likely to opt for other platforms such as Alphabet (GOOGL - Free Report) and Twitter (TWTR - Free Report) as the total addressable market (TAM) of these companies is much bigger than Snapchat.

Besides, Facebook’s strategy of mimicking Snapchat’s feature to boost user growth and engagement levels has been successful with the social media giant making them more popular than Snapchat.

This has led to polarization of investor sentiment on the stock, which is evident from its year-to-date performance. Notably, shares of Snap have lost 27.7%, while Twitter, Facebook and Alphabet gained 34.7%, 4.1% and 2.2%, respectively in the year-to-date period.

Growing Popularity of Stories

Facebook has been benefiting immensely from the growing popularity of Stories across all its major platforms, with Instagram taking center stage. Per CEO Mark Zuckerberg, Instagram and WhatsApp are the top two “most used Stories product in the world.”

In August 2016, Facebook added the Stories feature to Instagram. The feature proved to be a massive hit, with 200 million DAUs by April 2017. This prompted Facebook to add the same on its other platforms.

Notably, Messenger Day had 70 million DAUs by September 2017 while that of WhatsApp Status is 450 million so far in May. By November 2017, Instagram Stories had more than 300 million DAUs while Snapchat’s total user base was 191 million as of the last reported quarter.

Per Sensor Tower, Instagram downloads continue to surpass Snapchat in the global market, with the gap widening in the first quarter.

Per a recent report by eMarketer, U.S. user base of Instagram is expected to grow 13% in 2018, while that of Snapchat is anticipated to rise 9%. Moreover, Facebook is expected to account for 11.3% of all U.S. advertising spending in 2019.

Digital Advertising Push

Facebook intends to capture the opportunity presented by ever-increasing video viewing on social media platforms. Earlier, the company mentioned that video has been emerging as a “megatrend”. The company believes that over the next three years videos will be the key catalyst among all product lines.

Management now notes Stories to be a big part of the future of video sharing. Therefore, the company’s current focus is to make ads “as good in Stories as they are in feeds.”

As of the last reported quarter, Facebook had over 6 million active advertisers while Instagram had 2 million. The availability of carousel ads in Instagram Stories that help advertisers to share up to three photos or videos in an advertisement, instead of just one, is expected to give further impetus to its advertising business.

Twitter is also ramping up video advertisements on its platform.  Video ads continue to be the key driver for the company backed by strength in Video Website Cards, Video App Cards, In-Stream pre-roll and mid-roll ads. Besides, Twitter’s growing popularity in the international quarters where Snap is yet to gain a foothold is a concern.

Per the latest survey by Digiday, 42% of the respondents said that Snapchat was the most difficult platform for digital advertisements. Therefore, it remains to be seen whether Snap’s new advertising tools will help it withstand the growing competition in the digital ad market.

Zacks Rank

Facebook & Snap have a Zacks Rank #3 (Hold), while Twitter sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.

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