Examining the Possible Financial Future of Snapchat

Courtney Kiely
July 22, 2019

If you’re between the ages of 15-30 years old, you’ve most likely used Snapchat in your life. For a lot of people, it’s their preferred social media app. You’re able to keep up with your friends with the “stories” feature and send photos to them. The demographic for Snapchat is young, and this is a reason why it’s lost some growth in the past few years. Yet, its stock has finally started to rise. When Snapchat went public in March of 2017, its opening price was at $17 per share. About a year and a half later on December 21st, it fell to $5 per share. This was a dramatic decline for the company. 

Things have been looking better for Snapchat since the stock dropped in December. Right now, the company is trading around $15. This is a phenomenal bounce-back for Snapchat and shows investors that the company is in a much better spot than it was a year ago. Goldman Sachs analyst Heath Terry raised his rating for Snap to Buy from neutral, signifying a new sense of confidence in the company. However, there are reasons to pause on investing. Instagram has copied many of Snapchat’s features and made them better. The app has far more users than Snapchat and could eventually kill it. With all this said, What does the Future of Snapchat look like?

One of the biggest reasons why Snapchat’s stock is up by over 160% this year is due to its newfound attention to Android. It’s been a joke for as long as I can remember that if you had an Android (which I have had), then you might as well just not have Snapchat. The app used to be buggy and slow, with the camera quality being hilariously bad. Snapchat actually doesn’t take a traditional photo with a camera. Instead, it launches the camera and then takes a screenshot of the image and that’s your photo. On Android, this used to look awful. Now, Android users have much better luck with the app. 

This may come as a surprise to many, but Android actually dominates the smartphone market worldwide. It has a 76% market share, as opposed to around 22% in the US. In America, it feels like Apple dominates the phone market. Most teenagers and people between 20-30 have iPhones. It’s a dominant market here in the US, but that’s just the thing. In America, Apple has 52% of the market share compared to 48% from Android. 

I lived in Italy for 6 months last year and was able to travel throughout Europe, and I noticed that almost no one there has an iPhone. Android dominated the market overseas because people don’t want to pay nearly $1000 for a phone. It makes sense, and Snapchat putting a greater amount of focus and attention into the Android market, while long overdue, has had an enormous impact on its stock. 

Another reason investors have changed their minds on Snapchat is due to some of their new business ideas. The company has stopped trying to cater to everyone, instead focusing its energy on Gen-Z users (born between 1995 and 2009). The app has always had a younger feel to it, with face-filters being a popular item among younger kids. Snapchat has also been increasing its focus on user engagement rather than user growth, which is a huge change. This is going to lead the company to be able to make more targeted ads that focus onactual demographic. This new business model has been a key reason why investors have changed their minds on Snapchat. Travis Freeman, executive vice president of media for ad agency VaynerMedia had the following to say about Snap, “It feels different, it feels good, it feels grown-up but still authentic to them. It’s good vibes.” I think this statement is really on-point for what has made Snapchat re-invent itself and worth an increased stock price. User downloads increased in the month of May to 41 million, while also seeing higher reviews for the app amongst users. Snapchat’s games feature has also been semi-popular, especially to younger audiences. This is another aspect of the Snapchat experience that could take off in the next few years. 

Snapchat has also found a way to make money from a business model focused on sending photos to people. The invention of the “story” feature from Snapchat completely changed the game for the company. With the story feature, Snap is able to put advertisements in between the stories and monetize from it. The business model that Snapchat has been able to create has investors changing their opinions on the company from one that had no sustainable income, to one that has a bright future ahead of it. Even Goldman Sachs is impressed with Snapchat’s new way to make money off of advertisements. "Our checks with advertisers also lead us to believe that the company's continued innovation in its ad-stack, particularly in self-serve, should allow SNAP to substantially improve monetization of user time spent on the platform over time," said research notes about Snapchat. 

While things might look really bright for Snapchat right now, there is still reason to have some concern. Even after the stock has grown over 160% this year, it’s still behind the opening price of $27.09 to around $12 right now. This says more about the company having a terrible 2018 than anything, but it’s still something to keep in mind. The only real way for Snapchat to make money right now is through ads. If it stays this way, Snapchat’s ability to make money has a certain ceiling if you may. They’re only going to be able to go so far, where places like Instagram have numerous ways of making an income.

Instagram has also shown no hesitation when it comes to stealing from Snapchat. Snap was the first social media platform to use the stories feature, and Instagram copied Snap and improved on the feature. Even to this day, Instagram stories are more highly thought of than Snapchat stories. This idea presents the problem that no matter what Snapchat does, Instagram can just copy it and improve on it. Making their competition another thing to consider. 

Snapchat has been described as a “Cinderella story” by some. The changes it has made from 2017 to now are huge, and investors have noted this. The change from trying to market to a large number of people to a smaller, more engaged group of users turned the ship for the company. Snapchat’s price is up 160% this year, and it has elements that give the company a road to long-term success. There could be bumps in the road, especially with Instagram showing it can steal some of Snap’s best features. Yet, Snapchat has reinvented itself to once-again become not only an exciting company with users, but also with investors.

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