While the coronavirus pandemic has hit the real world hard, it forced people all over the world to live virtually. With social distancing procedures in place and real-world social gathering places like bars and restaurants closed, social media companies should be getting a bump.
The numbers say otherwise. Since the beginning of the year, the S&P 500 had lost 14.4% of its value, as of the closing bell on April 13. The best performing social media stock is newly public Pinterest Inc. (NYSE: PINS), which dropped about 9.6%. Twitter Inc. (NYSE: TWTR) fell 13.8%, Facebook Inc. (NASDAQ: FB) retreated 15.6%Â and Snap Inc. (NYSE: SNAP) lost 18.2%.
Rapidly growing TikTok, from Chinese firm Bytedance, already has about 800 million monthly active users, compared to around 281 million Snapchat users. Unlike Snap’s Snapchat, TikTok does not remove a video but stores it in a user’s account. TikTok also lets users add music to their videos.
A significant part of the downturn in social media share prices is likely attributable to investors’ belief that these companies lost ad revenues in March and are likely to lose more in April and May.
In Snap’s case, analysts are looking for year-over-year revenue growth of nearly 40% for the first quarter. That’s a sharp sequential decline and a pretty easy target to hit, all things considered.
What Snap Does
Snapchat, the company’s first product, lets users send pictures or short videos with messages that were available only to other people using Snapchat. Originally, the messages lasted just for a short time, though the duration was lengthened in 2017.
CEO and co-founder Evan Spiegel wrote: “Snapchat isn’t about capturing the traditional Kodak moment. It’s about communicating with the full range of human emotion — not just what appears to be pretty or perfect.”
In addition to short, disappearing videos, Snapchat’s Story and Discover features appeal both to its users and to its advertisers. Facebook’s Instagram app jumped on the Story bandwagon quickly and made it a prominent feature on the platform.
That’s one of Snapchat’s biggest problems. None of its features is very hard to duplicate. The company hopes to change that with a new feature.
Snap Launches App Stories
Late last month, Snap added a capability that the company hopes will be nearly impossible to duplicate. Called App Stories, the new feature allows a third party to post Snapchat Stories on the third party’s platform in native format directly from Snapchat.
In order to make it easy and cheap for other apps to use App Stories, Snap has done the heavy lifting needed to create the Stories exchange between Snapchat and other social apps. To encourage developers further, App Stories don’t expire for seven days, unlike the 24-hour time limit on Snapchat Stories.
None of Snap’s early partners is a household name yet, but some interesting things are possible in App Stories. Online dating app Hily allows users to post Stories in their dating profiles. Music video app Triller lets users share Stories along with user-created videos and an app called Squad, which lets users make video phone calls and share photos and Stories remotely through screen sharing.
As interesting as the possibilities are for advertising on such a platform, Snap is not yet placing ads that already appear alongside Snapchat Stories into other apps. Yet, the potential is there, and it could be lucrative if Snap and its partners can strike deals that make everyone happy. That includes the stock market.
Snap’s First-Quarter Outlook
The company is set to report first-quarter results on April 21. Analysts are looking for a loss per share of $0.07 on revenues of $441.56 million.
In the first quarter of 2019, Snap posted a loss of $0.01 per share and revenues of $320.43 million. That’s a year-over-year revenue gain of nearly 38%, but a drop of 27% from fourth-quarter revenues of $561 million. If Snap can beat the estimate (not a slam dunk by any stretch), investors are going to like this stock a lot more.
While quarterly revenues are somewhat seasonal, most of Snap’s serious users have been home for at least two or three weeks due to the closures of schools around the country to help prevent the spread of COVID-19. Those students are not spending all their at home time studying, and since they can’t see their friends in the real world, keeping in touch by Snapchat could be a big boost to ad revenues for the company.
Since the beginning of March, 13 analysts have weighed in on Snap stock. Of those, six raised their ratings to the equivalent of Buy, four have maintained a Buy rating and three have issued Hold ratings. In all, 25 analysts have Buy ratings on the stock while 11 rate the shares a Hold and just one has a Sell rating.
The consensus price target on the stock is $16.91, giving an implied upside of 25% to Monday’s closing price of $13.54. The shares were up 1.9% on Tuesday to $13.80, in a 52-week range of $7.89 to $19.75.
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