Snap Vs. Facebook – Where to invest?

By early 2017, in the aftermath of the widely publicised and much-anticipated IPO of snapchat, many people were wondering about the future of Snap vs. Facebook. Which of the two companies would succeed in cornering the market for photo-sharing and how would the respective share prices be affected? Would the innovative Snap with its appeal to the younger demographics reinforced by its original and very different user interface continue to acquire new customers and successfully monetise through advertising revenues or would the well-established giant, with its vast customer base and its equally enormous net worth simply steamroller over the new competitor? Some remarked that Snap, in positioning itself in a straight Snap vs. Facebook challenge, was taking a considerable risk. Other companies have challenged Facebook and found the contest a fatal one. Will Snap fare any better in this contest between tech giants?

If you are interested in this matter and have been asking:’ Snap vs. Facebook’ – where to invest? then you will no doubt be familiar not only with the arguments for and against each company but also with the immediate aftermath of Snap’s IPO. Despite the hoopla and all the talk of the hot new initial public offering in the tech field many observers and pickers were advising their customers to either hold or sell their shares in Snap. The reasons for this attitude were many and varied but one dominant factor was intrinsic to snapchat itself; it does not offer any profits. Indeed by early 2017, Snap was earning 96% of its income by advertising and this looked set to increase markedly over the next few years. The fact remained that some analysts were not predicting a profit for Snap much before 2020. This goes some way to explaining why snap chat share prices were falling by March 2017. Another reason suggested by some analysts was that Snap had been overvalued in its initial estimation; Snap appeared to agree with this itself for a while when the markets became of the cash losses (mentioned above) in its business plan and reduced their estimation from $US 25 billion to $US 22.5 billion. Then healthy public interest in the IPO changed their minds back again. The question of Snap vs. Facebook has no easy answers!

However, if you are wondering whether to invest in Snap vs. Facebook then you will do well to keep these facts in mind. Snap’s present cash losses, combined with the fairly early stage which it’s monetizing through ad revenues has reached, means that it will be operating on very small margins for some time. Remember also the sheer size of Facebook by comparison. In the last quarter of 2016 Snap was being used daily by 158 million customers, which sounds impressive until you realise that in the same period Facebook had 1.22 billion daily active users. Such reach into such a huge customer base is a factor you will want to bear in mind when you consider deciding on Snap vs. Facebook or vice versa.

(Simon Topliss, Research)

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