U.S. Markets close in 3 hrs 17 mins

Snapchat warns: Our competitors have more money, resources, and users

JP Mangalindan
Chief Tech Correspondent

Snap (SNAP) management has a big warning for investors.

“We compete with other companies in every aspect of our business, particularly with companies that focus on mobile engagement and advertising,” the company said in its IPO filing. “Many of these companies, such as Apple, Facebook (including Instagram and WhatsApp), Google (including YouTube), and Twitter, have significantly greater financial and human resources and, in some cases, larger user bases.”

Snap may have debuted 40% above its initial $17 per share price, but the ephemeral messaging company is hardly out of the woods. In the short to medium term, Snap will face increasing competition from rivals, particularly Instagram, all vying for a slice of the company’s youthful user base.

Indeed, Instagram, the Facebook-owned photo-sharing app with 600 million monthly users, targeted Snap head-on last August when it launched Instagram Stories, a feature that very closely resembles Snapchat’s own My Story feature. Similar to My Story, Instagram Stories lets people string together several photos and videos, but with fewer filters and lenses, to appear atop Instagram users’ feeds.

Instagram CEO Kevin Systrom was the first to admit in a series of interviews around the time Instagram Stories launched that the new feature’s similarity to Snapchat was no mere coincidence. Rather, as he told TechCrunch, Snapchat deserved “all the credit.”

The launch of Stories appears to have benefited Instagram, which reports 150 million people using the feature every single day. The move also hurt Snap, which does not disclose monthly user data (a potential red flag to some), but reports 158 million daily active users sending 2.5 billion Snaps each day.

Instagram’s 600 million users send 150 million stories a day. (Photo by Carl Court/Getty Images)

According to a new study released this week by New York City–based research firm 7Park Data, daily active user growth for Snapchat slowed to a 5.3% rate in the four months after Instagram Stories launched. Furthermore, the study found that the number of times Snapchat users used the app on a daily basis “declined significantly.”

7Park Data based its findings on data gathered by studying over 14,000 Instagram and Snapchat users who used both apps each day over the course of about four months, beginning in early August, when Instagram launched Stories.

“Snapchat ought to be worried about the implementation of Instagram Stories, because Instagram is a far larger player in the market, having over 500 million MAU [monthly active users] and a substantially wider audience reach that appeals to corporate influencers, among others, especially those that were late to build an audience on Snapchat,” 7Park Data wrote in this week’s report.

Over the next few months, expect the competition to become even more heated, particularly from Facebook (FB), which has a long history of coveting Snap’s success among youngsters. In 2013, the social network reportedly offered to shell out $3 billion in a failed bid to acquire Snap. It also released an app called Poke in 2012 that offered messages that disappeared automatically before shutting it down in 2014. Facebook debuted a similar app called Slingshot in 2014, which was also eventually shuttered.

WhatsApp has 1.2 billion users.

WhatsApp, another Facebook-owned messaging platform with over 1.2 billion monthly active users, announced “Status” this February, a new feature that lets its share videos, photos, and GIFs that expire after 24 hours. And Facebook continues to tinker with something called “Facebook Stories” that would place its own version of Snapchat stories atop the Facebook News Feed on the main Facebook app.

Heck, even non-Facebook-owned properties like the publishing platform Medium is emulating Snap with the recent announcement of a Stories-like feature.

Snap, for its part, is fully aware other companies are out for blood.

“Certain competitors, including Apple (AAPL), Facebook and Google (GOOG, GOOGL), could use strong or dominant positions in one or more markets to gain competitive advantages against us in areas where we operate, including by: integrating competing social media platforms or features into products they control,” Snap’s S-1 filing acknowledged.

It’s hardly doom and gloom for Snap, of course, which is riding high on its successful Wall Street debut. Many Snapchat users remain loyal, with millions of teen users still preferring Snap’s more ephemeral core product to Instagram.

JP Mangalindan is a senior correspondent for Yahoo Finance covering the intersection of tech and business. Follow him on Twitter or Facebook.  

More from JP: