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Snap Continues to Crush Facebook in This Key Demographic | The Motley Fool

Snap‘s (NYSE:SNAP) Snapchat is still the most popular social media platform for U.S. teens, according to Piper Sandler‘s (NYSE:PIPR) latest semi-annual “Taking Stocks with Teens” survey.

Thirty-one percent of the survey’s 7,000 respondents preferred Snapchat, compared to 30% who chose ByteDance‘s TikTok and 24% who chose Facebook‘s (NASDAQ:FB) Instagram. In Piper’s previous survey, 34% chose Snapchat, compared to 29% for TikTok and 25% for Instagram.

Those numbers indicate Snapchat remains comfortably ahead of Instagram, but both platforms could be losing ground to TikTok. Let’s see what those shifting dynamics could mean for all three companies.

Image source: Getty Images.

How did Snapchat survive Facebook’s assault?

Facebook reportedly tried to buy Snap for $3 billion in 2013. Snap walked away, went public in 2017, and is worth $92 billion today.

Facebook wanted to buy Snapchat because its own user base was getting older. Younger users started to avoid Facebook because their parents were using the platform, and Instagram — which it bought for $1 billion in 2012 — was still much smaller than its main social network.

After Snap rejected Facebook’s offer, Facebook launched several Snapchat clones and copied many of Snapchat’s defining features (including vanishing messages, stories, and filters) in Instagram and Facebook Messenger. However, Facebook’s stand-alone Snapchat clones — which included Poke, Slingshot, and Lifestage — all fizzled out and failed to win over teen users.

Three young girls take a selfie while shopping.

Image source: Getty Images.

Snapchat’s daily active user (DAU) growth briefly decelerated in 2018 as Instagram rolled out more Snapchat-like features. But it recovered by expanding its lineup of Discover videos, adding more augmented reality lenses and in-app multiplayer games and allowing its users to create their own AR experiences.

As a result, Snapchat’s DAUs increased 17% to 218 million in 2019, then grew another 22% to 265 million in 2020. Its average revenue per user (ARPU) continued rising, while its annual revenue grew 45% to $1.7 billion in 2019 and increased another 46% to $2.5 billion in 2020 — even as the pandemic temporarily disrupted ad purchases last year.

Snap expects its revenue to grow about 50% annually over the next few years as it continues to expand its ecosystem and enter the social shopping market with new investments and acquisitions. Instagram could struggle to match that growth if its tighter integrations with Facebook — which include intertwined posts and messages — alienate its teen users.

But can it hold TikTok at bay?

Snap seems to be holding Instagram at bay for now, but TikTok remains a looming threat with more than 700 million monthly active users (MAUs) worldwide. TikTok established an early-mover’s advantage in the short video space by occupying and expanding the niche which Twitter prematurely abandoned by killing off Vine in 2016.

Many teens likely use both Snapchat and TikTok, but TikTok is gradually expanding into Snap’s backyard with integrated messaging and social shopping features. Snap is also becoming more similar to TikTok by encouraging its users to submit short videos for cash prizes via its new Spotlight feature.

In other words, it could only be a matter of time before Snapchat and TikTok become direct competitors. Instagram, which launched a TikTok-like feature called Reels last year, already recognizes that threat.

Snap is growing at an impressive clip, but Piper’s survey indicates it could still lose its crown to TikTok in the near future. The Biden administration has paused the Trump administration’s attempts to ban TikTok in the U.S., so Snap and Facebook should no longer expect a government intervention to throttle ByteDance’s growth.

The bottom line

I’m still bullish on Snap, and it’s one of the top 10 holdings in my portfolio. It should remain ahead of Facebook in the teen market for the foreseeable future, but TikTok is a long-term threat that shouldn’t be ignored. Investors should see how Snap fares against TikTok in Piper’s future surveys to see if it can remain the top social network for American teens.

 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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