Instagram – the snap-oriented app of Facebook (FB, Financial), now boasts more than 400 million active users for Stories – a personal feed of photos and videos within Instagram. Snapchat (SNAP, Financial), the pioneer of stories feature, has less than 200 million active users on its platform. Facebook’s Instagram, on the other hand, has more than 1 billion monthly active users on its photos sharing platform, up 25% since September last year. Snapchat is down more than 2% since the news broke.
Snapchat reported 191 million active users during the first quarter of 2018, up 15% on a year-over-year basis. However, the photos-sharing app registered an unimpressive 2% growth in daily active users sequentially. The number of users using Snapchat is up 7% since September 2017 while Instagram grew its active users by 15% during the same period. The daily active users (DAUs) addition for Snapchat was the lowest during the first quarter of 2018; the company attracted a mere 4 million additional active users towards its platform.
It seems Snapchat is struggling to revitalize user growth due to stiff competition from Instagram. Facebook’s photo sharing app has the resources to replicate Snapchat’s feature in a better way, which is evident from rising number of Instagram users. Not only Facebook is replicating features from Snapchat, it’s also coming up with new features to keep users interested in its photo sharing platform. Just recently, Instagram introduced a video feature – IGTV – that will allow users to post videos as long as 60 minutes. Moreover, Instagram has also started to roll-out music feature that will allow users to add background music to stories’ posts. The point is Snapchat will find it increasingly difficult to compete with Instagram as Facebook adds more features to its photo sharing platform.
On the advertisement side, Snapchat will also face headwinds amid increasing popularity of Instagram. As the gap between Instagram and Snapchat users grows, advertisers will find it difficult to justify posting ads on Snapchat. They will either go for Instagram, or negotiate flexible terms with Snapchat. In short, Instagram’s popularity can hurt Snapchat’s top line, or put its margin under pressure going forward.
It’s worth mentioning that Instagram is expected to generate $5 billion in revenue during 2018 while Snapchat will potentially bring in $1.2 billion in revenue during the same period. Given Instagram’s 1 billion monthly active user-base, Facebook has to earn around $5 per active user to reach $5 billion in 2018. In contrast, Snapchat has to generate more than $6 per user based on 200 million active users in order to reach the analysts’ revenue consensus. As Snapchat’s user base is materially smaller than Instagram, generating more revenue per user than Facebook’s photo sharing app will be difficult feat, to say the least.
Takeaways
- Instagram’s growing popularity will certainly put pressure on Snapchat’s top line. Businesses will hesitate to advertise on Snapchat if the disconnect between Facebook and Instagram users’ base continues to increase.
- Given low number of active users compared to Instagram, Snapchat will find it difficult to increase average revenue per user; revenue targets might not be achieved consequently.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
