Snapchat’s stock (SNAP) is easily overlooked, but shouldn’t be.
It may look like just a silly app, but, really, they mean serious business.
Yes, it’s got these ridiculous videos and filters you can put on your face that make you look like an old person or a bunny or a fire god; and it feels like if you put a circus in app form, you would get Snapchat.
But really, it’s a visual innovation powerhouse that’s worth your attention.
Misunderstanding SNAP Is an Opportunity
Snapchat has struggled these last few years as an investment. After it’s IPO, it dipped, a lot. There are some good reasons for that. It’s not profitable. They made some design changes that got push back from key users. And I think the biggest reason for its lagging price is that many investors just don’t understand it. It’s too silly, too childish, too weird.
But just because you don’t understand something doesn’t make it a poor investment. Often that makes it an opportunity. If you don’t comprehend it, that often means others won’t either. When investors don’t understand a company that is doing innovative work and has a diehard fan base, it’s an opportune investment.
Snapchat’s Users Love It
Yes, it might be like a circus, but young people love circuses. Snapchat’s audience is young, but they love the app. 69% of 13-17 year olds use the app. And teens say it’s the most important social media app they use.
Snapchat has also improved the amount they monetize on their audience from 32 cents in 2016 to about $2 in June 2020. That’s 6X growth in revenue per user in four years.
And maybe you’re hung up on the idea of them being unprofitable. But many great companies had the same issue, for years, like Amazon, Netflix, Google, Facebook, etc. But they turned out pretty ok. And I don’t know if Snapchat will become as big as those companies, but it’s not impossible. It’s not like Snapchat doesn’t have a user base and that it doesn’t have revenue. It has both. But Snapchat is also focused on something else, something more. It’s innovating.
SNAP’s Power of Augmented Reality and Video
They have quietly built one of the greatest augmented reality companies in existence. Those crazy face filters, yeah, that’s AR. They have dozens and dozens of them, hundreds, and they are creating more. And those filters aren’t just for faces of people but the faces of places, for iconic landmarks like the Eiffel Tower. Snapchat is also empowering its users to use AR to create on places everywhere. They are literally changing the way people are engaging the world with their devices.
Not only that, but it’s also building an enormous mobile-first video library that’s entertaining its audience. They don’t just have user-generated content, which is rich and produced by a very engaged user base, where 60% of their users create content, whereas only 10% of Twitter’s users create 80% of the content. Snapchat also has it’s own Snapchat Originals, which is content that the company produces.
The pandemic is making technology like this even more powerful, useful, and essential. Since it’s harder and more dangerous to engage physically, people use digital tools to connect, communicate, and share. Snapchat is at the forefront of that, especially for young people.
And all of that points to one thing: value. Snapchat is becoming more valuable. And it’s getting bigger and more prominent, but it’s within a population of people investors often overlook—kids.
Snapchat and Tencent
But Tencent hasn’t. You might know Tencent by the headlines it’s getting these days for being a Chinese tech giant that the Whitehouse is trying to fight against in its battle with China. Tencent is one of the world’s biggest tech companies and has been making investments in all kinds of companies like Riot Games, Epic Games, and Tesla. As of 2017, it holds a 12% stake in Snapchat. Tencent understands the future is more than just writing posts and posting pictures of our kids on their first day of school on platforms. It will be more creative, digitally rich, and richly integrated between the digital and physical worlds.
Tencent is betting on the Metaverse. The Metaverse is the idea that eventually, technology will become so advanced that we will live in the digital world almost seamlessly with the physical one. We will shop, attend concerts with friends, date, see a doctor all online, virtually or with augmented reality, or some combination. And when we are walking around in the physical world, we will see digital realities, like advertisements or videos or murals and art all over through augmented reality. And this digital world, some believe, will be worth trillions.
Closing Thoughts on Investing in Snapchat
Snapchat is at the tip of this movement. With their deep investing in AR and the user base that is already using their platform to create these realities, they have the makings of not just possessing staying power but changing power. They have the capacity and the eventual makings of being on the cusp of making the future of technology and how humans will interact with it.
They are creating the future today.
Yes, no one really knows what tomorrow will hold. But it’s often a good idea to bet on companies who create the future instead of letting it be created for them.
At least, it’s time to see Snapchat afresh.