Snap Inc (SNAP) Stock Snaps Back With Time Warner Inc (TWX) Deal

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News that Time Warner Inc (NYSE: TWX ) will create in-app streaming programming for the youth-oriented Snapchat messaging platform was enough to briefly lift Snap Inc (NYSE: SNAP ) back above its March IPO price on Monday, but shortly after buyers dove for cover. This tells me that it's going to take more than a blockbuster development deal to give SNAP a lasting lead as rivals like Facebook Inc (NASDAQ: FB ) start closing the competitive gap.

Snap Inc (SNAP) Stock Snaps Back With Time Warner Inc (TWX) Deal

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That's not to say that SNAP has been shut out of the game already. In fact, $100 million in original shows and ads over the next two years is a windfall for the company. It proves that Big Media is eager to tap into this audience and drive 166 million daily users toward more traditional media properties offline.

Wall Street's valuation models already assumed that a lot of that cash was on the way, however, with analysts factoring about $1.5 billion in revenue expansion between now and the end of 2018. Bringing TWX to the table may accelerate that arc as much as 4%-6%, but the company is already a Top 20 global ad buyer, pumping about $2 billion a year into everybody else's programming. We should expect at least 2% of that massive budget to shift to SNAP.

The real thrill factor here is the emerging transformation of Snapchat from pure user-generated conversation - the most transient and lowest-quality content around, from an advertiser's perspective - to something like mass-market programming advertisers can better target and track.

What This Means for SNAP Stock

Think of the difference between structured YouTube channels and the free-flowing cat videos that occupy the lower reaches of the site's search engine. As the experience and audience become more consistent, parent company Alphabet Inc (NASDAQ: GOOG , NASDAQ: GOOGL ) can charge higher ad rates.

That's something Facebook and Twitter Inc (NYSE: TWTR ) have struggled to achieve. It's great to see what your friends had for dinner, but it's hard to sell that burger picture to advertisers. That's not just a hypothetical example, either. Facebook in particular has been working to integrate messaging into its photo-sharing Instagram app as a way to challenge SNAP on its home turf and serve incremental low-end ad inventory.

However, that's not getting a lot of existing Snapchat addicts to leave the platform, and if those users embrace the original programming, the business gets even stickier. But what concerns me right now is the route between here and there. SNAP has been aggressively courting content producers for its structured Discover feed for years, scoring deals with just about all the major studios and magazine publishers at this point.

Some of these pro channels are holding 19-20 million unique viewers a month, which is enough to make initially tentative advertisers start taking them seriously. Capture those brands, and SNAP can let a few of those burger picture ads go. Whether FB truly wants them remains to be seen.

Hilary Kramer is the editor of GameChangers , Breakout Stocks , High Octane Trader , Absolute Capital Return and Value Authority . She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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