Media

How Youth Behavior Could Help Snap Stock Click

Carl Sullivan

Changing social media trends could favor Snap Inc. (NYSE: SNAP), which soared after impressive first-quarter results reported last month. A new poll shows young people spending more time on image-focused sharing sites such as Snapchat and Instagram, to the detriment of Facebook Inc. (NASDAQ: FB) and Twitter Inc. (NYSE: TWTR).

The survey of 1,600 high school and post-secondary students (aged 13 to 22) found YouTube to be the most popular social media service, with 79% usage. Following close behind were Instagram (73%) and Snapchat (66%). Only 58% said they used Facebook and 44% used Twitter. The poll was conducted by The Federalist and the Young America’s Foundation, a conservative youth advocacy group.

YouTube is owned by Alphabet Inc. (NASDAQ: GOOGL), while Instagram is a subsidiary of Facebook.

If these 13- to 22-year-olds stick with Snapchat as they age, it could shift the social media landscape. Generally, usage of Facebook grows as you move up through the generations. Last year, Pew Research found that 62% of Americans aged 18 to 29 used Snapchat, but Facebook polled higher with 79% usage. Among the 30 to 49 category, 79% used Facebook but only 25% used Snapchat.

Impressive First Quarter

In earnings reported April 22, Snap reported a net loss of $0.08 per share and $462 million in revenue, compared with consensus estimates that called for a net loss of $0.07 per share and $431.43 million in revenue. In the same period of last year Snap reported a $0.10 per share net loss and revenue of $320.43 million.

During the quarter, daily active users (DAU) increased to 229 million from 190 million in the first quarter of last year. On average, more than 4 billion Snaps were created each day in the first quarter of 2020. This user growth has likely been accelerated by the coronavirus pandemic lockdown. With schools closed, young people are spending more time on their devices.

Average revenue per user increased 20% year over year to $2.02. As a result of these numbers, many analysts moved the stock to their Buy categories. The stock was at $17.60, up 2.87% in midday trading on Tuesday.

How the Lockdown Could Help Snapchat

The pandemic may be boosting Snap usage in other ways. People stuck indoors can spend more time in the digital world. “Communication with friends increased by over 30% in the last week of March compared to the last week of January, with more than a 50% increase in some of the geographies that were most impacted,” the company said.

Snap is even piggybacking on the explosion of videoconferencing from services such as Zoom Video Communications Inc. (NASDAQ: ZM). As people turn to videoconferencing to connect with coworkers, friends and family, the company saw a 30% increase in “daily downloads of Snap Camera, a desktop app which allows people to add our entire suite of Lenses to whichever video service they use,” according to the Q1 report. Anything to liven up those often boring Zoom conference calls!

And these silly filters aren’t just for fun. Over 75% of Snap’s daily active users engage with filters, opening new opportunities for commerce. Advertisers are increasingly using customized filters to reach consumers. Snap recently launched the Lens Web Builder, which enables advertisers to create their own augmented reality Lenses easily and instantly.

Consumers with more free time could also help Snap’s original content, a mix of short entertainment and documentary videos. “Total daily time spent by Snapchatters watching Discover content increased by over 35% year-over-year in Q1 2020,” the company says. Snap just announced “Will From Home,” which chronicles the shelter-in-place experience of actor Will Smith.

While the pandemic may be boosting social media usage, it’s also whacking away at advertisers’ budgets. A bright spot for Snap has been direct response marketing, which asks users to immediately buy a product online or download an app. “Direct response advertising has nearly doubled as a share of our revenue over the past two years, and represents more than half of our total revenue,” Snap said.

Stock market analysts will be watching Snap’s second quarter results for a fuller picture on the pandemic’s impact. Some expect to see lower ad spending at Snap, Facebook and other social media companies.