SnapChat managed to turn things around in 2019, but will the momentum continue?
SnapChat has been one of the most exciting stocks to watch this year. The company’s shares are up 164% year to date, and the company’s recent earnings report showed that its subscriber base is booming.
The company does an excellent job of consistently appealing to a younger audience. And the company fixed some of the earlier problems with its app.
But Wall Street is still on the fence when it comes to the stock. SnapChat is considered a moderate buy with an average price target of $18.01, which represents an 18% upside.
So is SnapChat a buy, or should you hold out a little while longer? Here are three things to know before investing in Snap stock.
Facebook will continue to pose a problem for Snap
One of SnapChat’s primary appeals with subscribers has always been its unique features. But the problem is, it’s easy for larger companies to replicate those features and steal SnapChat’s subscribers.
Facebook is one of the best examples of this. Remember that kid who always copied you in school and then received all the credit? That’s probably how SnapChat management feels about Facebook.
Facebook created a couple of different apps designed to compete with SnapChat, but neither succeeded. Then the company famously copied SnapChat’s Stories feature for both Instagram and Facebook. Stories was a hit on both platforms, with more than 500 million subscribers per day.
And most recently, Facebook announced its launching a messaging app for Instagram called Threads. The feature allows Instagram users to send photos and videos to people on their friend’s list. The feature closely mirrors SnapChat’s messaging platform.
The copycatting is a problem because Instagram has over 500 million daily active users. This massively outnumbers SnapChat’s 203 million daily active users.
The company is still losing quite a bit of money
SnapChat is doing well, and its bottom line continues to grow. But investors can’t ignore the fact that the company continues to lose millions of dollars every quarter. During its most recent quarter, the company posted losses of $255 million.
The fact that the company is losing money doesn’t necessarily mean it’s a poor investment. Amazon lost money for a long time before becoming profitable, and I’m betting there are few people who regret investing in the company.
The problem for SnapChat is that the company continues to play second-fiddle to companies like Facebook. Instead of becoming a leader and dominating the market, the company is easily outmaneuvered and thrown off course by larger companies.
The company is a turnaround success
And finally, let’s give credit where credit is due. In 2018, SnapChat had a pretty abysmal year, so the fact that it’s been able to turn things around is impressive. It shows a lot about the company’s resourcefulness and ability to adapt to a changing market.
And the company continues to grow its active user base and improve its monetization strategies. The most significant indicator will be whether SnapChat can keep this momentum up in spite of increased competition.