Facebook Inc (NASDAQ:FB) stock could further strengthen its position as the best social media play with its latest move, taking on Snap Inc's (NYSE:SNAP) Snapchat in its stronghold territory.
There is a sense of renewed optimism among investors of popular social media app Snapchat's parent Snap Inc (NYSE:SNAP) while shareholders of Mark Zuckerberg led Facebook (NASDAQ:FB) have had some tough time with the company coming under pressure from various fronts. Snap Inc stock is gaining some momentum this month which we believe is difficult to sustain. On the other hand, Facebook stock has literally gone nowhere. One major reason for better investor sentiment around SNAP stock has been that Snapchat is still the most popular platform among US teens, a stronghold territory for the app, despite many attempts by Facebook's Instagram to dislodge it. However, that could change with the Facebook's latest 'tbh' acquisition. In the long run, 'tbh' could be another Instagram for Facebook Inc, reinforcing it as the best social media play. Let's take a closer look.
Snap Inc's Snapchat keeps Facebook at bay in this demographic.
Over the past few months, Facebook has launched a slew of copycat features on its family of apps to hurt Snapchat. However, a recent PiperJaffray’s bi-annual poll survey has found that Snapchat clearly holds the top favorite social media app spot among teens in the United States, with nearly half of the respondents of the survey favoring Snapchat. Facebook's Instagram is not far behind Snapchat but still has some major catching up to do. This demographic also happens to be one of the most sought-after demographic among advertisers. If Facebook manages to gain at the expense of Evan Spiegel co-founded Snapchat in this demographic, it could be another big boost for FB stock.
Facebook's 'TBH ' acquisition could be a good move to hurt Snapchat in its stronghold territory.
Yesterday, Facebook announced the acquisition of positivity-focused polling startup 'tbh', which stands for 'To Be Honest'. The tbh app has 5 million downloads and 2.5 million daily active users in the past nine weeks. This app "lets people anonymously answer kind-hearted multiple-choice questions about friends who then receive the poll results as compliments". "tbh" has become very popular among teens and high school students, a demographic where Facebook lags Snapchat in a big way, topping the free app charts for weeks. The acquisition cost is reported to be less than $100 million. It is indeed interesting that Facebook has decided to acquire the startup instead of copying the successful features like it has done with Snapchat features and other teen apps like Houseparty.
The fact that Facebook has decided to acquire the startup does suggest there is a lot of potential in this move. This acquisition gives Mark Zuckerberg's Facebook another weapon to take on Snapchat head-on among the teen demographic where it lags the latter. A TechCrunch author makes some interesting observations about the tbh move. tbh app is still yet to be released in all of the states in the US and it's already quite popular. Now, with Facebook tbh has at its disposal cash, elite engineering team and anti-spam technologies to scale it to the likes of Snapchat and Instagram. Facebook's support would also help in the expansion of tbh, both in the US and internationally along with different languages support. Instagram which grew its user base 10x to 800 million and Whatsapp user base going from 450 million to 1.2 billion since being acquired by Facebook are good examples of how Facebook can scale products with its massive resources.
By moving swiftly Facebook might have avoided Instagram and Whatsapp like situations where it was made to pay billions to acquire these companies. The investment amount is really not big enough for Facebook but the results could have a huge impact in the long run and could help to maintain Facebook's dominance in the social media segment. If Snapchat would have acquired tbh, it could have further strengthened its position among the teens. By this purchase, Facebook could hurt Snap Inc's Snapchat in its stronghold territory. Going by Facebook's track record, tbh could become another growth catalyst as Instagram for FB stock.
To sum up, tbh purchase is more likely to strengthen Facebook stock's position as the best social media play. With the tbh move, Facebook could further make inroads into the demographic where Snapchat is the leader and which also sought out by advertisers. For now tbh is likely to operate independently but it is possible that more synergy with other Facebook family apps could be seen soon, which could add further value to the Facebook's advertising platform. FB stock still remains a good long-term buy as it has several other long-term growth drivers. Facebook stock also happens to be among our top stock picks from the technology sector, which have outperformed the NASDAQ by over 168%.
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