When Snap (SNAP -4.06%) went public, some investors were giddy about investing in a company that was so popular with millennials, the population that will be the economic driving force for the next few decades.
The general narrative was that Snapchat was cool and used by younger people, while Facebook (META -1.16%) was lame and overrun with older folks. But that's not the narrative we've seen in the companies' financial reports and when it comes to investing.
Facebook's next 10 years look much more promising than Snap's next decade. Image source: Facebook.
Snap vs. Facebook: pre-IPO and post-IPO periods
Facebook went public in 2012 when it was eight years old and valued at just $104 billion. Today, it boasts a market cap of $512 billion. Snap went public last year when it was just five years old and valued at $24 billion. Today, it has a market cap of just $14 billion. Already, you can tell the different paths that Facebook and Snap have been on since their respective IPOs.
When Facebook went public in 2012, it had already proved itself the year before by growing its revenue 88% year over year to $3.7 billion in 2011. It also reported a net income of $1 billion in 2011. On the other hand, Snap lost $514.6 million in 2016, the year before it went public. While it's revenue did show an impressive year-over-year growth rate of 589.1% to $404.5 million that year, Snap's less than impressive financials made for easier comparisons than Facebook had back in 2011. Furthermore, Facebook was profitable and Snap was far from it.
Snap's post-IPO period is much of the same story. Its revenue grew 104% year over year to $824.9 million for 2017, but that's compared to a modest $404.5 million revenue generated in 2016. Plus Snap still lost $720 million in 2017. For comparison, the year Facebook went public in 2012, it was already profitable and pulled in $5.1 billion in revenue, an increase of 37% over the previous year's already impressive $3.7 billion. Facebook's net income for its IPO year was $53 million.
And despite the tough comparisons, Facebook continues to pull off impressive revenue growth five years after going public. For 2017, Facebook's revenue increased 47% year over year to $40.7 billion. Based on Snap's performance so far, you'd be hard-pressed to find someone who could envision the company pulling off that type of growth in 2022.
Snap vs. Facebook: addressable market and growth
If you zoom out and look at the two companies' overall addressable market, Facebook swamps Snap. In fact, Snap's addressable market is estimated to be 80% smaller than that of Facebook plus Snap has already passed 50% penetration among that already small market of potential users, according to Needham.
That explains why even though Facebook is 14 years old, it still managed to grow its daily active users (DAUs) 13% year over year to 1.45 billion this past quarter, beating expectations. This also represented a 3.5% increase in DAUs just from the previous quarter.
This also explains why six-year-old Snap's user growth already seems to have peaked. For the past quarter, the company reported a 15% year-over-year growth to 191 million DAUs, missing estimates for 194.2 million. Even worse, Snap's DAUs grew just 2% from the past quarter -- its slowest user growth rate ever, down from 5% growth in the fourth quarter and 3% in the third quarter.
Snap is less than half the age of Facebook, but its user growth rate is already slower than Facebook. The Snapchat redesign that had a wide release on Feb. 6 was supposed to help Snap grow its user base by making it less complicated to use for non-digital natives. However, the redesign caused so much backlash from users that Snap has had to make some adjustments to it to appease people.
Snapchat vs. Facebook's Instagram: product superiority
Besides its smallish addressable market, another reason Snap is struggling to grow is because Facebook-owned Instagram tends to copy Snapchat's best features -- and make them better.
For example, Snapchat was the one who first created the popular Stories feature that allows users to set photos and videos as their status for 24 hours before they disappear. However, Snapchat's app has just 191 million daily active users (DAUs) while Instagram's copycat Stories feature hit 300 million daily users back in November. Instagram was able to beat Snap at its own game.
Knowing that, it might not surprise you that some researchers estimate Instagram to be worth an incredible $100 billion. That means Facebook's side photo-sharing app Instagram is worth about seven times Snap's entire $13.7 billion market cap. In other words, despite all the comparisons between Snapchat and Instagram, they really aren't as comparable outside of the fact that they allow people to share photos.
And in that same respect, when you consider Facebook and Snap's balance sheet and growth potential, they hardly seem comparable. Snap seems further than ever from profitability after its latest dismal quarter, while Facebook has been profitable since 2009 and just hit an incredible 1.45 billion daily active users. Facebook was already a winner on its own, but paying $1 billion for Instagram back in 2012 has made it unstoppable.
