As the US government moves closer to banning TikTok, a popular video-sharing app that is owned by a Chinese company, many investors are focusing attention on this massively oversold social media stock.
TikTok is available in over 150 countries, has over 1 billion users, and has been downloaded over 210 million times in the United States alone
But a certain rival social media app could be a potential winner in this scenario, where a bipartisan bill would give President Joe Biden the power to ban TikTok, and other apps that could pose security risks.
Snapchat, which allows users to send and receive photos and videos that revolutionized social media, has been competing with TikTok for users and advertising revenue, and stands to gain massively from these events.
For all we know, they could be the leading cheerleaders in congress to push for the ban! (or maybe they are paying the lobbyists who are pushing this? hmmmm…)
A TikTok ban in the US could eliminate a major competitor and attract more users and advertisers to Snapchat’s platform, boosting its growth and profitability.
SNAP has plunged by more than 85% since its peak in September 2021, reaching a low of $7.33 in October 2022. The company has been facing a lot of challenges, such as declining user growth, increased competition, regulatory scrutiny, and product failures.
But given the recent developments, is it time to consider buying SNAP after its massive sell-off, or is it a value trap that should be avoided?
I don’t use either Snapchat or Tiktok (I’m more of an Instagram guy), but we’re all here to make money right? So I’m curious about the answer too.
Let’s find out together.
Snapchat and the Potential Loss of Rival TikTok
The potential ban on TikTok could benefit Snapchat, which has a similar user base of young and creative people (I like to think I’m a part of this group), who use the app to create and share short videos, photos, and messages. Snapchat has over 300 million users worldwide, and over 90 million in the US.
With the possible ban or restrictions on its rival, Snapchat could leverage its feature called Spotlight, which allows users to discover and watch viral videos from other users, similar to TikTok’s “For You“ page.
Snapchat could gain more users and advertisers from TikTok if the ban goes into effect, as well as from other social media platforms that are trying to compete with TikTok, such as Instagram Reels and YouTube Shorts.
The Perfect Opportunity to Buy?
After a massive crash in price, which is a whopping 85%(!), I believe that SNAP is extremely oversold and undervalued, meaning that its stock price is lower than its true worth.
It can be argued that Snapchat still has a loyal and engaged user base, especially among younger generations, that is attractive to advertisers and marketers.
And according to its latest earnings report, Snapchat had 306 million daily active users in the fourth quarter of 2022, up 8% year over year, and generated $1.2 billion in revenue, up 23% year over year.
The company also reported positive free cash flow for the first time in its history, indicating that it is becoming more efficient and profitable.
This must be pointed out that Snapchat has also been innovating and improving its products and features, such as Spotlight, Maps, and Snap Games, to enhance its user experience and retention.
Spotlight, for example, is a feature that allows users to create and watch short videos, similar to TikTok, and earn money based on the popularity of their content. Spotlight had 100 million monthly active users in January 2023, up from 50 million in December 2022, showing strong growth and engagement.
I believe that Snapchat continues to have a strong brand, a unique value proposition, and a competitive edge in the social media space, and that its current challenges are temporary and solvable.
I also think that Snapchat has a lot of growth potential, especially in international markets and emerging segments, such as augmented reality and e-commerce, which even without the possible TikTok ban, could be enough to turn things around for SNAP.
Still, Snapchat Was Sold Down For a Reason
Some analysts and investors think that the company is facing too many headwinds and uncertainties that could limit its growth and profitability.
They argue that Snapchat is losing market share and relevance to other social media platforms, such as Instagram, YouTube, and TikTok, that have larger and more diverse user bases, more content and features, and more monetization opportunities.
It is also worth noting that Snapchat is facing regulatory pressure and legal challenges, such as the antitrust lawsuit filed by the Federal Trade Commission, the privacy lawsuit filed by the UK Information Commissioner’s Office, and the potential ban in India, one of its key growth markets.
It is also doubtful that Snapchat can sustain its innovation and differentiation, as it is constantly being copied and challenged by its competitors.
Snapchat’s ability to generate consistent and profitable growth is questionable, as it is still heavily dependent on advertising revenue, which is subject to macroeconomic and seasonal fluctuations, as well as user and advertiser preferences.
What To Do Now?
More and more people are starting to believe that Snapchat is a fading and risky company, that has lost its competitive advantage and growth momentum, and that it faces too many threats and challenges, both internally and externally.
Snapchat seems to have limited growth potential, as it is already reaching saturation in its core markets and demographics, and it has difficulty expanding and monetizing in new markets and segments, such as e-commerce and augmented reality.
Given all this information, I normally wouldn’t touch SNAP even with a 10 feet pole.
But the stock has been really, really, reaaalllyyyy oversold. And with the possible TikTok catalyst, it could just be what the stock needs for a quick and massive rally.
Be careful though, if the TikTok ban didn’t materialize, we could see SNAP plummet back to Earth.
You don’t want to end up as one of those people who make videos about their Snapchat losses!
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