On Tuesday, Facebook’s online mobile photo-sharing app Instagram announced ‘Stories’, a new feature designed to directly take on emerging rival Snapchat.
Snapchat, which was valued at more than $22 billion in a recent series of funding, is increasingly seen as a viable threat by Facebook (NASDAQ:FB) not only because the service is a big player in the social-messaging app industry, and currently placed above Facebook’s premiere apps-WhatsApp, Messenger, and Instagram, but also because the start-up with its ephemeral videos is increasingly dominating the attention of younger users. In fact, according to a recent Bloomberg report, Snapchat had 150 million daily users, a figure suggesting the app is more popular than Twitter (NYSE:TWTR).
Facebook tried to buy the four-year-old Snapchat more than three years ago for $3 billion, an offer co-founder and CEO Evan Spiegel rejected. According to a 2014 Forbes interview with Spiegel, Facebook CEO Mark Zuckerberg told him that Facebook was working on a mobile app that sounded a lot like Snapchat, Poke, and that the app, used for sharing photos and making them disappear, would be launching a few days later. “It was basically like, ‘We’re going to crush you’,” Spiegel remembered.
Facebook did not release an identical app back then, but it has been slowly adding new features to Instagram that are similar to Snapchat, such as visual codes, crafting your photos, etc. These new products are good news for Facebook stock investors as they could also help improve monetization.
If the new ‘Stories’ feature proves successful to Instagram, the app could see higher user engagement and as a result increased ad engagement. In fact, Credit Suisse analysts expect the photo-sharing mobile service to contribute “a whopping $3.2 billion for 2016.” In addition to that, and based on last year’s estimates from analysts with Cowen & Co., Instagram is projected to generate $5.8 billion in revenue in fiscal-year 2020. Keep in mind, these figures exclude the potential for more revenues the app could generate from strategies like ‘Stories’. So it goes without saying that we could see continued growth in Facebook’s revenue. It’s worth also noting that FB’s 2012 $1 billion acquisition of Instagram looks smarter and smarter each quarter.
Facebook Stock Action
Facebook shares were down 38 cents, or 0.31%, at $122.71 in pre-market trading Wednesday. The Facebook stock price is up over 17% so far in 2016. While the name wasn’t seen as a great investment when it first went public in 2012, its stock has more than tripled since then and the $355 billion market cap company it’s currently one of the most-held names among billion-dollar investing firms.
FB shares have advanced 7.79% in the last 4 weeks and 4.82% in the past three months. Over the last 52-weeks, the equity has gained 30.75%, compared with a 3.70% gain in the S&P 500. Despite the notable gains, we don’t see the social media stock’s upside stopping there. Facebook is expected to grow by more than 71% this year and 29% next year. EPS are forecast to grow by nearly 29% into fiscal 2017.
With Facebook’s current business model, which includes ads sold to both desktop and mobile users for the Facebook and Instagram platforms, company’s earnings expectations and growth outlook, we could see continued growth in the company’s bottom-line and as a result, further upside in FB shares.