Will SnapChat Steal Facebook's Thunder In Video Ads?

  • SnapChat has revealed that it now receives 6 billion video views every day, making it the second most popular online video site after Facebook.
  • Although SnapChat has not yet started displaying video ads, its videos have a high level of engagement, making it a formidable competitor to Facebook.
  • SnapChat will have to overcome quite a number of hurdles before it can compete with FB in video ads.
  • There is a strong likelihood that Facebook will make a new offer to acquire SnapChat after its $3 billion offer in 2013 was turned down.

SnapChat, the video app known for ‘‘disappearing photos,’’ has revealed that its video traffic has tripled in just six months to hit 6 billion views per day, placing it eerily close to Facebook's (NASDAQ:FB) 8 billion views per day, and making it one of the most popular video sites on the planet. SnapChat is an app that was launched in 2012 by Stanford students as a way of sending and sharing interesting and, mostly naughty, photos. The app quickly grew in popularity and SnapChat Stories was finally launched in late 2013.

SnapChat Stories are pretty much like FB posts or Twitter (NYSE:TWTR) tweets, or Instagram photos, but with some key differences. SnapChat Stories disappear after 24 hours meaning that what you see on SnapChat are pretty much live events. If you miss the 24-hour window after a story is posted, it’s gone forever. FB posts can of course be retrieved months or years later if need be.

Higher Engagement

Another big difference between SnapChat Stories and FB posts is that SnapChat Stories do not get displayed in a vertical stream like Facebook News Feeds: a SnapChat user is only able to view a friend’s story by opening the SnapChat app and swiping to the right to access ‘‘My Friends List’’ tab where they can view stories posted by friends over the past 24 hours. Now the most important aspect to SnapChat Stories: the viewer has to keep holding a finger to the phone’s screen for the video to continue playing. The moment they remove the finger the video stops playing. And therein lies the biggest value proposition of SnapChat videos to marketers: 100% engagement.

SnapChat users have to keep pressing their finger to the phone screen to continue watching the videos, which essentially means that if the video is playing then somebody is watching. Facebook videos play automatically when clicked on, and will continue playing whether or not somebody is watching. Marketers typically need an ad platform with a high level of engagement, and higher the engagement level, the higher will be the CPM rates ads on the platform can command, which in turn translates to more ad dollars.

SnapChat’s Limitations

SnapChat has not started displaying ads alongside its videos, though it’s almost inevitable that it will, at some point in the near future. Marketers crave the kind of engagement that SnapChat offers, and it’s only natural that the platform tries to monetize the gazillions of video views on its site.

For all its potential attractions to marketers, SnapChat badly lags Facebook in some key areas. First off, SnapChat’s 100 million daily active users are just about 10% of Facebook’s number for the same metric. This suggests that the billions of video ads that SnapChat is laying claim to come from a few people watching many different videos, which is not quite as effective in marketing terms as many more people watching a few videos each. It’s hard to remember 20 or 30 disparate videos viewed in the space of a few hours compared to say 3 or 4. A big reason why Facebook ads are able to command much higher CPM rates compared to other social media sites such as Twitter lies in the enormous number of users on its platform. SnapChat’s much lower number of users therefore places it at a distinct disadvantage when competing with Facebook.

Then there is the question of how SnapChat counts its video views. For a Facebook video to count as a view, it has to be watched for at least three seconds. Facebook recently introduced an even better option for marketers who demand high levels of engagement by introducing the requirement that a video has to be watched for at least 10 seconds before it counts as a view. This helps to ease worries about Facebook’s autoplay feature.

For SnapChat, any video that opens for even a few milliseconds counts as a view. This method of counting video views is of course not meaningful to marketers, though SnapChat could choose to change that. The bottom line, however, is that though SnapChat says it receives 6 billion video views per day, the actual number of videos that are viewed long enough to be useful for marketing purposes could be much lower.

But perhaps the biggest reason why SnapChat is unlikely to cause Facebook major problems any time soon lies in the app’s insane data consumption. Studies have revealed that using SnapChat’s most popular features such as live feed viewing, video messaging, and media-curated stories can lead to extremely high levels of data consumption. This not only severely limits the ability of the app to become mainstream in developing economies (Facebook gets about 51% of ad revenue from overseas markets) but is also sure to limit its use even in developed economies where people are quite conscious about how they use their data plans. Facebook recently launched Facebook Lite, a lighter version of its app with stripped down features that allows users to consume much less data.

One of the biggest reason why Facebook has become such a successful social media site lies in its appeal and global acceptance by a wide variety of demographics. Meanwhile, 60% of SnapChat users are aged 18-24. While this kind of demographic may appeal to marketers wanting to build brand affinities, it might fail to appeal to many more marketers who want to cover all bases including older demographics with money to spend on the goods they advertise.


SnapChat is growing in leaps and bounds, and has already become one of the top video sites. But the platform has a long way to go before it can really give Facebook a run for its money in video ads. SnapChat turned down a $3 billion acquisition offer by Facebook in 2013, saying it wanted to grow its userbase first so that it could command a higher valuation. The company was recently valued at $16 billion through a new round of equity funding, so the company is now likely to consider a new offer. Investors should not be taken by surprise if Facebook makes a new offer for SnapChat in the not-too-distant future, but this time expect Facebook to cough up something in the ballpark of the $19 billion it paid for WhatsApp.

Brian Wu Brian Wu   on Amigobulls :
Author's Disclosures & Disclaimers:
  • I do not hold any positions in the stocks mentioned in this post and don't intend to initiate a position in the next 72 hours
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
Amigobulls Disclosures & Disclaimers:

This post has been submitted by an independent external contributor. This author may or may not hold any positions in the stocks discussed. Neither Amigobulls, nor any members of its staff hold positions in any of the stocks discussed in this post. Amigobulls has not verified the author’s positions in the stocks discussed, and does not provide any guarantees in this regard. The author may be paid by Amigobulls for this contribution, under the paid contributors program. However, Amigobulls does not guarantee the authenticity or accuracy of the information provided by the author in this post.

The author may not be a qualified investment advisor. The opinions stated in the post should not be treated as investment advice. Buying and selling of securities carries the risk of monetary losses. Readers/Viewers are advised to carry out their own due diligence and consult their investment advisors before making any investment decisions.

Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

show more

Comments on this article and SNAP stock

Do share this awesome post