Tell Me More: Starting Monday, the Snapchat app will have a dedicated tab featuring a TikTok or Reels-like swipeable feed of user-generated videos sorted by an algorithm. Anyone can submit a video, though account information is anonymous (unless users opt-in), and there are no visible likes or comments.
- All the videos posted on Spotlight will be subject to human review, unlike its rivals. This should weed out a higher chunk of harmful videos. It also doesn’t allow any “overly political content or any posts with misinformation.
But Here’s The Rub: Snapchat is shelling out $1 million a day as a prize pool for the creators of the highest performing videos.
- TikTok and Reels have also launched programs to pay creators.
Why is Snapchat doing this? Everybody wants a piece of the short-form video pie, which was left up for grabs after Vine shut down. After acquiring Musical.ly in 2018, TikTok built up an unassailable lead in the space and now Snapchat, Facebook’s Instagram and YouTube are all trying to recapture market share.
Looking Ahead: If it works out, Spotlight could “open up a valuable source of ad inventory (though it won’t include ads at launch) for Snap and increase engagement among its [249 million] existing [daily] users.”
- Spotlight will initially be available to users in the “U.S., Canada, Australia, New Zealand, the U.K., Ireland, Norway, Sweden, Denmark, Germany and France.”
So far after using Reels, it’s clear to me that TikTok’s dominance in the short-form video space is intact and that the app is here to stay. At least for now, the copy attempts from Instagram and Snapchat won’t stymie TikTok’s growth or stickiness, but they have a good shot at keeping people from switching more usage time to TikTok.
I was a vocal bear of $SNAP stock when they IPO’d in 2017 and thought they were on the structural decline after Instagram aggressively copied stories. Indeed my thesis was correct for three years, but Snapchat has impressively recaptured momentum this year and has developed very interesting augmented reality (AR) tech.
Yet it’s still hard to justify buying $SNAP on valuation. They are trading at 31x forward gross profit. Sell-side buy recommendations base their $50 price targets on a 15x 2022 revenue multiple and DCFs that rely on Snapchat doubling Ad revenues and quintupling Lens/Filters revenues in the next 2-3 years.
Because of this, I am more than willing to skip $SNAP stock based on the fact that its valuation leaves little room for mistakes or growth hiccups. Snapchat’s business execution will need to be consistently stellar going forward in order for the stock to be a good decision.