Should I Buy SNAP Stock?

Should I Buy SNAP Stock? Investing in a fad can be risky business, but what happens when it becomes a full-on trend?

More importantly, what happens when that trend becomes pervasive? These are good questions for any investor to ask, but they are particularly relevant for Snap (SNAP), the company behind Snapchat.

The question of whether to invest in Snap is complicated and its business is much more complex than a single smartphone app.

In this article, we are going to take a deeper look at the company. See what you think and use this as a starting point for your own research.

Is SNAP “Reinventing the Camera”?

Snap defines itself as a camera company – that is the first line in its annual report. It continues to say that it is “reinventing the camera” and this presents the “greatest opportunity to improve the way that people live and communicate.

We contribute to human progress by empowering people to express themselves, live in the moment, learn about the world, and have fun together.” That is a lofty statement, but it may be true.

Snap’s biggest product – the one that started everything – is the smartphone camera app Snapchat.

It lets people take pictures and create short videos that expire, sometimes after viewing. This feature takes away the pressure of taking a perfect picture and empowers users to send outtakes and silly pictures as a way of connecting with family and friends in a very authentic manner.

Plus, Snapchat lets users attach important data to their photos and videos, such as location, time of day, temperature, elevation, and more, helping them be as relevant as possible and involve the recipient or viewer in a very real way.

Furthermore, Snapchat users have the ability to look at Snaps from around the world, checking in with different brands or people, by interest or through a map. When users find a Snap that they like or otherwise want to keep, they have the option to save those images as Memories that they can reference later.

SNAP Is More Than A Camera App

However, Snap is more than a camera app. It also sells Spectacles, which are sunglasses that connect with the app and capture images.

Most importantly though, Snap is an advertising company. Its app is free.

The main way the company makes money is through ads. This happens in a few different ways. The first is Sponsored Lens.

Snapchat allows users to filer their images using augmented reality, changing their voices, turning them into a cartoon of sorts.

These Lens are free to use, however not all of them come from Snapchat directly. Sponsored Lens allow brands to leverage that technology to create ads that are Lens – making for an unobtrusive advertising approach.

Advertisers also have the ability to then integrate longer form video, links to app downloads, and more. This could be in Snap Ads or in another format.

Snapchat leverages the information it has on each user, based on their usage of the app, to help those advertisers develop the most targeted campaigns possible. Those same mechanisms help Snapchat track the effectiveness of ads.

Is SNAP Stock a Buy?

Snap’s strategy is to keep improving its platform so that users keep coming back and continue to monetize it so that advertisers can reach its users.

One of its biggest strong points is that everything is free for the user and any ads a user sees are highly tailored to that person.

Snap believes that providing something that is high quality and free is a good way to keep users engaged.

Most of its revenue comes from the advertising and this works out well in developed countries.

Bandwidth is relatively easy to get, and users have ample data plans to use the app. The ratio gets more confusing in different geographic locations where the size of the potential advertising market is much smaller, but Snap expands as it can.

In areas with well-developed markets, it leverages any surplus income into product innovation.

What are the Risks of Buying SNAP?

Privacy is a potential issue with Snap. The company built Snapchat as an alternative to the communication without context that happens on other social media channels, but introducing relevancy also eliminates certain aspects relating to privacy – such as tagging a location or time of day.

Snap works to combat this by allowing users to customize the information that they allow on each Snap, but there is a perception of lack of privacy that has to be managed.

In addition, Snap competes against larger social media empires, like Google’s YouTube, Facebook’s Instagram and WhatsApp, or Twitter.

These rivals have more resources to throw at product innovation and distribution – and that is just scratching the surface.

Outside of the US, Snap faces competitors of which many Americans have never heard – but that doesn’t make those businesses less of a threat. That foreign competition could become the next big thing, be acquired by a larger rival, or otherwise leveraged to compete against Snap.

The issue is not as simple as who has the most users either – it comes down to engagement. Snap makes its money through advertisers. If its customers do not get a strong return on their investments, they may seek out other places to put their ads. This could include direct rivals (i.e., other visual social media networks) or less direct ones (e.g., search engine ads).

Plus, on top of everything, Snap has to keep evolving in order to retain and grow its user base. It need product innovation and the ability to attract the talent that can develop those innovations.

SNAP Stock Forecast Summary

Snap is an interesting company. It is the David to Facebook or Google’s Goliath and so far, the company has managed to stay above water.

Investing is Snap carries risk – all investments do – but there is also opportunity. Do your research and decide whether Snap makes sense in your portfolio.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.