Facebook Inc's growth is coming at the cost of Twitter and Snapchat.
Shares of Menlo Park, California-based Facebook Inc (NASDAQ:FB) have already made a great start to 2017 gaining more than 20% YTD. These gains were on the back of a strong finish to 2016, with Facebook registering almost 3X profit growth in 2016. Facebook's management stated in the latest earnings call that the social media giant will face strong headwinds on the growth front since "ad load" has saturated. To offset that, Facebook is taking on Alphabet's (NASDAQ:GOOGL) YouTube with its video content push. The social media company is trying to gain a larger pie of the multibillion-dollar online video advertising market the expense of YouTube. To add to that, latest findings suggest that Facebook is gaining at the expense of other social media platforms like Twitter (NYSE:TWTR) and Snap Inc's (NYSE:SNAP) Snapchat. FB stock could gain big, going ahead, on account of this.
Facebook Is Gaining More Ad Dollars At Twitter's Expense.
A recent Barrons post reported William Blair’s Ralph Schackart's latest bull thesis on FB stock. During his research, he actively interacted with the executives and heads of digital advertising agencies who suggested spending on ads in social media would go up significantly this year. One of the executives (a social media head) whom Mr. Schackart interacted with stated that her agency's social spending would go up by about 20% from last year. She stated that overall their clients would be spending 35% more on Facebook for ads and at the same time, a decline of 20%-30% ad spending on Twitter could be expected. A majority of the ad dollars saved by reduced spending on Twitter could be moved to Facebook. The social media head also made a statement that Facebook’s mobile platform is the leader in the space for both videos and ads, with Facebook's dynamic ads delivering best returns on investments for advertisers. It is as high as $5 return on ad spending but not close to Google search ads. Ralph Schackart's research also suggested that Instagram is now delivering a solid performance with Facebook messenger and live videos also showing great potential, though these are still early days for these platforms.
Facebook's Onslaught On Snapchat Doing The Trick.
In the last few months, we have seen Facebook launching a series of copied Snapchat features on its various platforms. The latest being Facebook's Messenger Day which is a clone of Snapchat 'Stories' for making plans. One can find friends to chat and meet up with Messenger Day’s filters and Active Now indicators. No matter what critics say and how shameless it is for Facebook to copy Snapchat, all this seems to be working in Facebook's favor. A post on The Street reports that analysts at JPMorgan state that these moves are helping Facebook fuel explosive user growth. The firm said Facebook's monthly active users (MAUs) growth has been the fastest from the time company went public in 2012 after launching Instagram Stories and other innovative features similar to Snapchat. Facebook's MAUs growth in 2016 saw an increase of 17% year-over-year, its highest-ever MAU increase of 25% was in 2012. Instagram registered best user growth in its history by adding 100 million new users in 2016.
JP Morgan asserted that this explosive user growth was indeed on account of the new product changes undertaken by Facebook. They also believe that Facebook's latest Snapchat like features would "increase organic sharing and engagement as users feel more compelled to share in-the-moment experiences". Facebook has excelled where Snapchat has struggled, that is, increasing its user base outside the demographic of 18 to 24-year-olds. JP Morgan suggests that this would become more difficult for Snapchat with Facebook adding all similar features to its platforms. It is a fact that older users aren't as likely to switch over to new platforms. JP Morgan's study also finds these features make people spend more time on Facebook and its other platforms, with a user spending an average of 54 minutes combined on Facebook, Instagram and Messenger. More new features and more time spent on Facebook and its other platforms is expected to bolster the company's revenues. Some new offerings also open up new monetization avenues for Facebook.
Summing It Up.
Facebook's dominance over other social media platforms is one reason why investment houses like JP Morgan and William Blair have a bullish rating on FB stock. JP Morgan suggests that new product changes and a solid ad revenue stream are likely to propel Facebook to above-consensus revenues in 2017 and 2018. As a TechCrunch report points out, Facebook's latest Snapchat like feature "demonstrates Facebook’s philosophy that while Snapchat may have invented Stories, it’s actually a fundamental content medium bigger than any one company." Facebook is not afraid to copy if it is valuable to users. FB stock remains a good long-term buy. Facebook stock is part of our Top Stock Picks from the technology sector which have outperformed the NASDAQ by more than 130% over the years.