Ever since Facebook FB purchased Instagram for $1 billion in 2012, both platforms have skyrocketed to the top of the social media world. But in today’s plugged-in culture, competition in this sector is always on the fray, and the ever-growing messaging app Snapchat could be the next thing on the market.
We already know that co-founder, CEO, and 25-year-old billionaire Evan Spiegel plans to take Snapchat public eventually, but when the company will hit Wall Street we do not know. Before then, investors will be eager to see how it stacks up against the industry giants, especially Instagram and its similar image-sharing model.
(Also read: Inside Snapchat: The Best Tech IPO for 2015?)
All About the Ads
Social media companies live and die by advertising revenue. Other metrics, like user growth, are merely ways to judge how valuable a site’s advertising space is. Those with slumping growth, like Twitter TWTR, are punished by the market because of their inability to monetize their product. On the other hand, Instagram and Snapchat seem poised to grow exponentially over the next few years.
Right now, Snapchat has just over 100 million monthly active users (MAUs), but the company has yet to turn a profit. Last year, Snapchat lost nearly $130 million, but it’s important to note that it just started generating revenue in November 2014. Originally, Snapchat didn’t feature any advertisements, and company executives have recently rolled out several unique money-making ideas.
Snapchat’s original claim-to-fame was its picture-sharing format that allowed users to send images and videos to each other that would automatically delete in a few seconds. Snapchat expanded beyond this with “Snapchat Stories”, which allows users to compile pictures and videos that could be viewed by their contacts for 24 hours.
Snapchat cashed in on Stories by creating a new section, “Discover.” The Discover section of Snapchat is similar to Stories, but partnered with companies like Viacom VIAB that curate their own files. Snapchat monetized this by placing 10-second ads within these Stories. Snapchat also places advertisements into its curated-event Stories, which broadcast popular-culture events such as the MTV Video Music Awards or the MLB World Series.
Recently, Snapchat has introduced Sponsored Discover Channels and Sponsored Lenses. Lenses are what Snapchat calls its special-effects filters, and Sponsored Lenses allow companies to shell out cash for a customized Lens advertisement. For example, a Halloween-themed Lens the advertised the new Peanuts movie was available last week. While companies pay for Discover ads by the view ($20 per thousand views), Sponsored Lenses are going for about $500,000 a day.
With these new revenue streams, Snapchat is finally on track to bring in some serious cash. According to some analysts, Snapchat is now on pace to bring in about $100 million over a 12-month span.
In contrast, Instagram currently has about 400 million MAUs and is expected to bring in around $700 million in revenue this year. However, it has traditionally supported fewer ads than Facebook. Company executives have recently opened up Instagram to its parent’s entire advertising portfolio. Analysts expect Instagram to bring in $6 billion of revenue by the year 2020.
What is really interesting to see is how Instagram and Facebook have started to reflect each other in the years since the acquisition. For example, just a few years back, Facebook was primarily text-based sharing, with some images and videos. Now, Facebook is majority image-sharing and similar to Instagram in that regard.
Unlike Snapchat, pictures and videos uploaded to Instagram are permanently displayed on users’ feeds. This allows for more traditional advertising, and it’s not uncommon to come across a sponsored picture while scrolling through the app. Instagram has also recently revamped some its features that allow users to explore popular topics (also read: Instagram Revamps Explore Tab)
Also, Instagram has now launched 30-second video advertisements, and it is now even challenging Snapchat’s curated events feature (Also read: Instagram Rivals Snapchat With New Curated Video Tool).
Similar to Snapchat’s Stories, Twitter’s new “Moments”, and Facebook’s Live Stories features, Instagram now offers US users the ability to search through a feed specifically curated by an editorial team. These types of features aim to attract new users and make it easier to find the site’s best content.
Changing the Game
It’s interesting to see Instagram borrow from Snapchat’s model because Snapchat has a lot of catching up to in other areas. But this ability to cover live stories and news in a new way is something that Snapchat has utilized well, and it’s the biggest advantage for the company going forward.
What’s really important here is that Snapchat has the ability to shake up how people view content in general, not just over social media. For example, look at the 2015 MTV Video Music Awards, an event which saw six Snapchat employees on-site, capturing pictures and video and curating the Story. The VMA Live Story had about 12 million viewers, and MTV’s own account pulled in 25 million. By comparison, the event had about five million viewers on television, down about 40% from 2014.
This is ground-breaking stuff, and now that the other giants like Twitter and Instagram are in on the event-curation game, the social media industry may be the new king of news and pop-culture. While Snapchat vs. Instagram is a fun battle to look forward to, the real fight is going to be social media against everything else.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
VIACOM INC-B (VIAB): Free Stock Analysis Report
FACEBOOK INC-A (FB): Free Stock Analysis Report
TWITTER INC (TWTR): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research