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Snap Stock Falls, Blames Facebook’s “Threads” App

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Snap (SNAP) stock tumbled as much as 7% during the trading session on Thursday and ended with a 3.38% decline. The stock fell after close rival Facebook (FB) unveiled its new messaging app “Threads,” inspired by Snap’s features.

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Snap stock falls

Notably, Snap stock has been freefalling for the last six consecutive days. Thursday’s loss of 3.38% came after the stock declined 4.64%, 1.77%, 1.37%, 5.76%, and 0.6%, in the preceding days, respectively. Collectively, the Snap stock has lost around 16.4% since September 25.

Notably, the Snap stock was down by 0.2% in September. Meanwhile, on a YTD (year-to-date) basis, Snap stock has gained 159.53%. At the closing price of $14.30, Snap’s market capitalization is $19.7 billion as of October 3.

How is Facebook’s “Threads” app affecting Snap stock?

Yesterday, Facebook launched the “Threads” messaging app for users of Instagram, which is Facebook’s photo and video sharing platform. With the “Threads” app, Instagram users can quickly share their status or send pictures and videos to their close group.

Facebook’s “Threads” app has reportedly borrowed many features from Snap’s Snapchat app. Notably, the Snapchat app also focuses on users sending photos and videos through private messages. Therefore, the launch of the “Threads” app could be seen as a potential threat to Snap stock. Additionally, Snap users might switch to Instagram, which already has a massive user base. Notably, Instagram claims to have over 500 million daily active users, much higher than Snapchat’s daily users.

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Facebook imitates Snap features

Facebook is known to copy features or elements from Snap in the past. Facebook launched two apps,  Poke in 2012 and Slingshot in 2014, that were inspired by Snap. Also, Facebook’s “Direct” messaging app, launched in 2017, was copied from Snap. However, all these apps did not work for Facebook.

The imitation of the “Stories” feature in 2016 from Snapchat’s Stories primarily benefited Facebook and hit Snap stock. On the contrary, Snap could not grow its user base with its Stories feature. The feature lets users post pictures and videos that disappear after a day. Facebook launched the “Stories” feature on Instagram and then later added it to its core Facebook app and WhatsApp platform.

Facebook’s strategy of cloning Snap has hit hard on Snap’s user base and Snap stock. Snap ended the second quarter with 83 million daily users in North America and 203 million users globally. Facebook had around 1.6 billion daily users worldwide on its social network at the end of Q2. In fact, each Facebook app, Messenger and WhatsApp, now has more than 500 million daily users. Rival Twitter (TWTR) had about 29 million daily users in the US and Canada and 139 million worldwide after Q2.

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Snap focuses on growing its user base

Despite the pressure from Facebook, Snap is keen on increasing its user base to boost its revenues. Snap added 13 million daily users in Q2, while Snapchat was the second most installed app in the US in Q2 2019. Also, Snap’s downloads grew by 18% YoY and reached around 10 million in Q2. For Q3, Snap forecasts its daily users to grow to 205 million–207 million. The forecast is higher than the year-ago daily users of 186 million and preceding quarter’s user base of 203 million.

Snap stock also expects Q3 revenues to grow in the range of $410 million to $435 million for Q3. Snap’s Q3 revenue was higher than Q2 revenues of $388 million and year-ago quarter’s revenue of $297.7 million. Also, CNBC’s host Jim Cramer believes that Snap could reach a stock price of $18 or $19 if it delivers an impressive third quarter.

We believe that users liked the Snap’s updated app. The recent partnership with Spotify could also work positively for Snap users. Snap’s new lineup of original programming called Snap Originals, targeting Snapchat’s mobile audience, could further boost user engagement. Also, the company’s focus on AR (augmented reality) technology is expected to expand the user base.

Analysts’ view on Snap stock

Many analysts, including MoffettNathanson, Guggenheim, Susquehanna, Evercore, are also bullish on Snap’s rising user base. They have upgraded the Snap stock recently.

Currently, around 12 out of 40 analysts have “Buy” ratings, up from the last month’s 11 analysts. Further, 25 analysts have a “hold” rating, up from 24 analysts the previous month. Only three analysts have a “sell” rating on the stock, down from five analysts last month.

Additionally, Snap analysts have given a 12-month target price of $17.32 on the stock. On October 3, the Snap stock was trading at a discount of $17.40 to analysts’ 12-month target price. Its median target price is $17.50 as of the same date.

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