Facebook Doesn't Need To Worry About Snapchat, It Has Platform Value

| About: Facebook (FB)


Snapchat has been grabbing headlines as the fastest growing social network.

However, Facebook has staying power and network effects working for it.

Snapchat is ultimately a fad and Facebook can integrate its acquisitions to make it more powerful.

Facebook (NASDAQ:FB) has been facing some competition as Snapchat (Private:CHAT) has been snapping up (bad pun intended) headlines as it continues to grow in value to absolutely ridiculous valuations.

The latest round as well values Snapchat at a ridiculous, absolutely mind-boggling $20B. The main selling point of Snapchat is that it has essentially taken over the teen segment and it is rising quickly as well, as seen by the graph below.

As a side note, I wonder which teens chose Google Plus (NASDAQ:GOOG) (NASDAQ:GOOGL)...

Anyways, as many of you know, teens and millennials are the most valuable demographic by far, and advertisers are spending dearly to get them. In this article, Adweek notes that advertisers spend five times as much to reach millennials as all other age groups combined. This bodes well for Snapchat, which has seen its valuation bloom and its revenues explode. Click to enlarge

Source: Techcrunch

Bulls also point to the massive engagement that Snapchat manages to suck from its users. Snapchat also has over 10 billion video views a day compared with Facebook at 8 billion only, with a much smaller daily average user base. The argument is that Snapchat's "videos" are short, but they have guaranteed engagement.

The thing is though, for everybody worried about Snapchat, they are completely missing the point. Facebook's value isn't that it's the most engagement-heavy, valuable social network, nor is it the hyper niche one of something like Slashdot or Reddit. The value of Facebook is that it is by far the dominant one. Facebook is the first social network that everybody gets exposure to and sets expectations for how the experience should be.

Click to enlarge

Facebook kind of operates in the background of most people's lives and it is there that lies its strength. As the background operator, it stays hidden. But as seen from the graphs above, most people do in fact end up using it more often than most other social networks. People spend an average of 40 minutes on Facebook every day. Even Snapchat only manages to get 25-30 minutes of usage per day, according to Business Insider.

The main point is Snapchat is simply a fad and serves a very niche purpose as of now. As monetization ramps up, more and more users will get steadily more annoyed with Snapchat, as seen here in a Reddit post about the growing uselessness of Snapchat. More complaining follows in the comments, and the highest rated comment is one saying that each iteration of Snapchat has only made it worse.

As time goes on, not only will Snapchat start to fade, but Facebook will be retrenching its strengths in international growth and monetization. Facebook has thousands of engineers working on wringing every bit of money out of users and has been doing it for almost a decade now, so scale and experience benefits apply. And as it keeps perpetuating its advantages, Facebook can start to integrate its platform with the multitudes of acquisitions that it has made over the years, such as Instagram, Oculus and WhatsApp, to make it so that it can take over as much as your life as possible (bad for consumers but great for Facebook investors).

Facebook doesn't need to worry. It's doing fine just by itself and can still make for a smart investment.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in FB over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.