Snapchat currently signs more new users, but Facebook Inc owned Instagram is catching up, keeping Snap stock under pressure.
It would be an understatement to say that shares of Snap Inc (NYSE:SNAP) have disappointed investors since its listing a few months ago. While the stock has seen some upside, Snap stock has generally trended lower. Shares of the Snapchat owner are down by nearly 45% from its listing day close. Snap stock has had several rallies, only to reverse its gains. In our previous post, we had advised our readers to book profits after Snap stock had gone up by over 30%. The stock is down 11% since then. And technical analysis suggests, this bearish phase still has some downside left.
There are two main reasons for Snap Inc's woes: earnings not living up to expectations and stiff competition from social media giant, Facebook Inc, and its subsidiary Instagram. Not only have Snap Inc's revenues not grown at the expected pace, more importantly, Snapchat has seen its user growth stagnate. Snapchat added just 7 million Daily Active Users (DAUs) during the previous quarter, significantly lower than expectations.
More new users sign on Snapchat.
Snapchat is very popular with teens, a coveted group by marketers. There are also reports that more teens are leaving Facebook.com platform and joining platforms like Snapchat and Instagram. One such report had caused the previous rally in Snap stock. However, since Instagram launched its version of stories last year, more users including teens are flocking to the Facebook-owned platform, denting Snapchat's growth. As per data by Jumpshot, a marketing analytics company, currently, more new users in the U.S are signing up on Snapchat than on Instagram. This is good news for Snapchat and Snap stock investors. However, if you look at the recent trend, Instagram is closing in on Snapchat.
Instagram Is catching up.
A year back, just 22% of the new users signed up on Instagram while 78% did so on Snapchat. However, the gap has continued to narrow since then. By the end of August this year, 48% new users were signing up on Instagram, bringing down Snapchat's share to just 52% from 78% a year back. And if this trend continues, which is a likely scenario, Instagram could start attracting more new users than Snapchat, further hurting Snapchat's user growth.
A major part of this growth has been due to "Instagram Stories" a feature which the Facebook-owned platform had copied from Snapchat. Facebook had launched "Instagram stories" last August. Since then, it has seen massive growth. It not only grew past Snapchat's total userbase but also crossed the 250 million mark, a few months ago. It's not only new users, even influencers are leaving Snapchat for Instagram for a variety of reasons. Snapchat makes it tough for the so-called influencers to track the number of views and likes for their posts, which impacts their earnings from promotions. Many ad agencies are urging Snap to be more friendly to influencers and more transparent in sharing data relating to campaigns by influencers.
The number of "influencers" posting Snapchat stories in the second quarter fell 20 percent from the first quarter, while Instagram saw an 11 percent jump, according to data-analysis company Captiv8. Influencers tend to generate a much higher level of engagement on a social platform. Influencers also tend to attract more users. With "influencers" flocking to Instagram, Snapchat could see engagement and user growth on its platform take a hit.
Technical analysis turns bearish for Snap Stock.
The strong growth in Instagram has kept Snap stock in check. After the 30% rally from its all-time low, Snap stock has been losing momentum. Snap stock made a bearish crossover with its 50-day moving average a couple of trading sessions ago. The stock had crossed below the 20-day moving average line at the beginning of the last week. Further, the Moving Average Convergence Divergence (MACD) Indicator has also turned bearish, with the MACD line falling below the signal line as well as the "zero centerline". As we have repeatedly argued, given the current fundamentals and growth prospects, Snap stock is not a good investment. If you are looking to invest in tech stocks, check out our top stock picks from the tech sector, which includes stocks like Facebook and Netease, and have outperformed the Nasdaq Composite index by over 150%.
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