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Facebook's Augmented Reality Supported Ad Push to Hurt Snap

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Facebook (FB - Free Report) is increasing the usage of augmented reality (AR) in its products to improve user engagement in order to attract more advertising dollars.

Moreover, the social-giant’s AR-related initiatives are expected to dent Snap (SNAP - Free Report) owned Snapchat’s dominance in the AR-supported advertising market.

Shares of Snap fell 2.49% to close at $13.31 on Jul 10, following the news that Facebook is testing AR-supported advertisements on its News Feed.

Notably, Facebook has returned 15.3% on a year-to-date basis, while Snap has lost 8.9%.



Facebook Pushing Hard to Leverage AR

AR involves superimposing computer-generated images on top of real-world video or camera images. Facebook has shown keen interest on developing the technology and has taken a number of initiatives to leverage it in its products.

In December 2017, Facebook opened up its AR Studio for developers. At its F8 developer conference in early 2018, the company launched an Ad-supported AR feature in the Messenger app that enabled users to see products they are shopping for.

Per Reuters, Facebook has stated that brands like Asus and Nike saw higher engagement from users who viewed those ads.

Facebook’s latest endeavor allows people to virtually interact with different products by using their smartphone cameras. Per TechCrunch, these ads include a “Tap to try it on” option, which opens up the AR capabilities.

The feature is currently supported by a select group of advertisers that include Michael Kors, Sephora, Bobbi Brown, Pottery Barn, Wayfair, King Digital (owned by Activision) and some other brands.

Snap to Hit Most From Facebook’s AR Push

Snap is a dominant name in the AR-supported advertising market, based on its sponsored lenses and filters. The company has been adding features like 3-D Friendmoji Deluxe World Lens to improve user engagement of its Snapchat platform.

The new features have been major growth drivers behind Snapchat’s soaring popularity among young users, particularly in Facebook’s comparison.  

Per Pew Research Center’s latest survey, Facebook’s popularity among U.S. teens aged 13 to 17 has reduced considerably. Only 51% of the responders said they use Facebook compared with 71% in the 2015 survey, when it was the leading social media platform.

The platform is far behind Alphabet’s (GOOGL - Free Report) YouTube, which tops the list with 85% of teens saying they use it, followed by Instagram with 72% and Snapchat with 69% users.

Further, Snapchat emerged as the most-used platform with 35% respondents admitting to visiting the platform frequently. YouTube came second with 32%, followed by Instagram with 15%.

Facebook trailed badly with just 10% of the teens admitting to using its services, while the share of Twitter (TWTR - Free Report) was even lower.

The survey results bode well for Snap as user engagement holds the key to attracting advertisers, which is its primary source of revenues.

However, we believe that Facebook’s aggressive push to integrate AR technology into its products will help it regain some of the lost ground. This will eventually hurt Snap’s growth prospects in the long haul.

Currently, Facebook has 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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