In 2018, there seemed to be growing consensus amongst Internet users that Snapchat was ‘dead.’ The once-popular social media app that allows users to privately chat with friends and create stories seemed to lose mass popularity, becoming overshadowed by Instagram and TikTok instead.
Fast forward to 2021, and the stock market is telling a different story. Shares of Snap Inc. stock are soaring, and Snapchat seems to be experiencing a new lease of life. But what’s behind this sudden surge of growth? Why has Snapchat been named one of Investor Business Daily’s 50 stocks to watch?
This article aims to provide some answers.
The Rise and Fall of Snapchat
From its launch in 2011, Snapchat promised something different. A twist on the traditional multimedia sharing style introduced by Twitter and Instagram, Snapchat boasted the USP of self-destructing images, texts and videos. Instead of being tied down to the permanency of other social media platforms, Snapchat innovatively allowed users to share content and post updates on their stories, which disappeared after 24 hours. The subsequent introduction of fun, appearance-altering filters helped proliferate the app’s popularity further, making it a ‘holy grail’ app for Millennials.
In 2013, Snapchat’s stratospheric rise came to a screeching halt after the company turned down a $3 billion acquisition offer from Facebook. Undeterred by their failed horizontal integration attempt, Facebook decided to roll out the 24 hour ‘story’ feature themselves, expanding it to Instagram and Whatsapp. Despite being a direct copy of Snapchat’s defining feature, Instagram stories quickly proved a popular hit. Kurt Wagner describes the move as ‘the best decision’ Instagram could have made, given that stories increased engagement on the app and altered the way users interacted with Instagram forever. It’s no surprise then that Snapchat was losing users to Instagram fast – the former had around 200 million active users a day whilst the latter pulled in over 1 billion. To try and overcome this, Snapchat overhauled its interface and offerings with a complete redesign. A redesign that, frankly, proved to be fatal.
Snapchat’s allure had once been its focus on privacy and friends, rather than celebrities or public figures. But the introduction of the ‘Discover’ and ‘Subscriptions’ features placed more focus on media institutions and news outlets, instead. Awkwardly placed ads further contributed to uproar against the new format. So unpopular was this redesign that it led to Snapchat’s notorious nail in the coffin moment: the Kylie Jenner tweet.
The power of celebrity endorsements and influencer marketing finally found its way to the stock market as Kylie Jenner’s tweet saw Snap’s stock market value tumble by £1 billion ($1.3 billion) in a day in 2018. Investors lost confidence in what had been an already volatile stock, with many chalking Snapchat down to nothing more than a brief ‘fad’ amongst its young users.
So, how has Snapchat’s stock slowly climbed back up and been touted as one of the best investments of 2021?
More Users, More Revenue?
In virtually the last week, excitement has been growing as Snap shares rose following the release of the company’s Q1 financial report. Revenue figures in this report surpassed Wall Street targets, growing from 66% to $769.6 million compared to Q1 2020. This could be attributed partly to the growing rise in Snapchat users. The company’s user base has increased by 22% in Q1, again exceeding expectations. Why? One answer is that the initial Millennial audience of Snapchat has now been replaced by an even more fervent Generation Z. Piper Sandler’s bi-annual ‘Taking Stock with Teens’ survey revealed that Snapchat is the most popular social media platform amongst U.S. teenagers with over 75% using it, hence outperforming TikTok and Instagram. The introduction of its new ‘Spotlight’ feature in March has further helped strengthen its user base, having been utilised by 125 million Snap users in the last month.
This has all translated to a 14% year-to-date rise in shares of Snap (as of Thursday 22nd April 2021), outperforming the S&P 500’s 10.4% gain over the same period. Of course, all technology and social media platforms have experienced stock market gains throughout the pandemic as users replaced physical interaction with digital experiences. But, as economies and public places slowly reopen, fears are growing that technology’s rise will stagnate. Despite this, there is a strong argument to be held for why Snapchat will prove the exception to the rule.
A Promising Future
According to investment analyst Luke Lango, Snap stock is a ‘long-term winner.’ Snapchat’s appeal lies in users sharing content with their friends and, with life slowly resuming back to normal, more of that than ever will be happening. Average users will switch from distractedly consuming content on TikTok, Netflix or YouTube to pass time with creating their own content and updating friends via Snapchat. Lango argues that the reopening of restaurants, shopping malls, tourist spots and concerts all signal more opportunity for Snapchat’s user activity to significantly increase as the world reopens. This ‘reopening-driven acceleration in user engagement’ could spark an even greater rise in Snap stock over 2021/22, a burgeoning trend which more investors and analysts are slowly picking up on. After all, findings from Q1 confirm that as restrictions have slowly eased in 2021, Snapchat’s user base has surged higher than at any point during the pandemic already.
Furthermore, the company shows huge growth potential in revenue terms as experts predict advertisements will increase as more firms in the travel and entertainment sectors channel money into digital advertising as part of their reopening strategies. A recent acquisition of Fit Analytics could help Snapchat become a new rival to Pinterest in the fashion and beauty arena, too. Finally, Wells Fargo analyst Brian Fitzgerald also cites Snapchat’s growing Android user base as another promising sign. Years ago, the app’s low Android penetration served as a key reason behind its low growth rates and unfavourable outlook amongst investors.
With so much potential, its little surprise that Nasdaq predict Snap stock could hit $100 (currently $60) over the next year. Whether tempted to buy or not, one thing is certain: Snap stock definitely seems to be one to watch.