Snap (SNAP - Free Report) lost almost 3% on Apr 10 as a report by eMarketer shows that the U.S.-based Snapchat user base might decline this year. The news shows potential for Facebook (FB - Free Report) that has been facing stiff competition from increasing Snapchat popularity, particularly among teenagers.
Snapchat and Facebook’s Instagram are currently a rage among the youth as messaging and social media apps. Per the latest Pew Center survey, Instagram and Snapchat, are used by 67% and 62% of 18- to 29-year-olds, respectively.
Apart from the ephemerality feature, the interactive style of chats and the continuous addition of attractive features have caught the fancy of teens. Being ephemeral, photos/videos and text sent to friends via these apps disappear after sometime. This provides a sense of privacy that has garnered significant importance in recent times.
Moreover, as the apps are less popular among the older demography, teenagers are less likely to bump into their parents or worse grandparents on the same network. This works as another attractive feature for youngsters.
eMarketer Believes Redesign Hurts Growth
Per the eMarketer report quoted by Bloomberg, Snapchat’s monthly U.S.-user base will decline 2.8% year over year to 77.5 million in 2019. Earlier, the market research firm had predicted a 6.6% rise in Snapchat user count for the year. The firm projects that Snapchat will add 600,000 new users between 2019 and 2023.
Snap had a disastrous 2018 primarily due to user dissatisfaction over Snapchat redesign, which eMarketer has cited as a factor hurting user base growth.
Moreover, celebrities like Rihanna used Instagram to criticize Snapchat’s advertising practices. Also, an executive exodus played spoilsport.
Will New Features Help Snap Sustain Momentum?
Snap has countered eMarketer’s prediction as methodology “flawed.” The company expects its user base to increase in 2019 on initiatives to attract users above 35 years and the launch of a new Android design that is currently in beta.
In fact, Snap shares have rebounded strongly in 2019 driven by the addition of features that have made Snapchat more enthralling for users.
Snap’s stock has returned 118.2% on a year-to-date basis, outperforming the S&P 500 and Facebook’s rally of 35.7% and 14.3%, respectively.
Year-to-Date Price Performance
The latest announcements of Snap games, Snap Originals, AR and camera search features are expected to attract users. These are likely to eventually allure advertisers, the primary source of revenues for Snap.
Snap recently announced a new slate of Snap Originals that will be aired in May. The company has partnered with the likes of Bunim/Murray Productions, Dakota Pictures, New Form and Bazelevs, among others, for the original shows.
Further, Fitbit (FIT - Free Report) in collaboration with Snap recently rolled out Bitmoji clock feature in select smartwatches with an aim to make fitness more fun and motivating.
Instagram Sees Rapid Adoption
eMarketer estimates a 6.2% rise in Instagram’s U.S. audience in 2019. The app will add 19 million new U.S. users by 2023.
The stark contrast in Instagram and Snapchat user count predictions can be attributed to the former’s rapid adoption among a wider young adult demography that includes teens. Per a Piper Jaffray 2018 survey, teens prefer to see more brand and product-related content on Instagram, trailed by Snapchat.
Moreover, according to a survey of U.S. teens conducted in March and April 2018 by Pew Center, Instagram was preferred by 72% in comparison to Snapchat’s 69%. However, 85% picked Alphabet’s (GOOGL - Free Report) Youtube.
Currently, both Snap and Facebook have 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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