The primary bull case for Snapchat is that CEO Evan Spiegel will be able to come up with something that Facebook can't copy. The other bull case is that no matter how well Facebook imitates Snapchat, its properties won't be cool enough for Gen Z to use them for daily communication.
Facebook is what Mom and Dad use; it's not a sexy social network anymore. One Millennial who says he invested in Snap, Kyle Coleman, told Inc., "I use Snapchat, and I know people who use it more than me. I use it more than any other app right now." He added, "If there's one thing I've learned now that I wish I understood when I was a kid, [it] is patience. Snapchat is a patient buy."
Even after Snap's disastrous first quarter as a public company, believers do remain. The company's eventual success -- and perhaps even profitability -- could hinge on the augmented reality experiences built into its core app and into its Spectacles accessory. Hardware integrated with software is far more competitively defensible than pure software.
Early Uber investor Jason Calacanis claims on Twitter to be long on Snap: "If @evanspiegel made 4 brilliant products, he can make a dozen more; his audience is loyal & slurp up his products." Asked if he thinks the company has a chance against Facebook, Calacanis answered, "I do, as they [have] the attention of gen-y / gen-c and $fb can't kill $snap after throwing everything they have at them."
Investment analyst Turner Novak has similarly high hopes. "I do not think Snap's competitors' efforts to slow the growth of Snapchat will be successful because I do not think they will be able to abandon their news feeds to adapt a messaging/camera centric model capable of challenging Snapchat," he wrote on Seeking Alpha. (Novak, who was expressing his private views rather than those of an employer, has deleted the post since this article was first published.)
Novak added, "I do not think competitors will be able to successfully emulate Snap's messaging/content/ad strategy without disrupting their existing user bases and advertising products." He may have a point down the line, but currently, Instagram's apparent impact on Snapchat's user growth belies this sentiment.
Still, independent investor Richard Saintvilus made the case that while Snap may be floundering at the moment, it has plenty of leeway to do so. "There continues to be growing concern about the cash burn rate, albeit reasonable concern, [but] the company is sitting on $3.24 billion in cash and zero debt. At the current CAPEX rate, Snap has -- at least -- five years before it runs into trouble. I suspect, ARPU will be up by then and its monetization strategy will be clearer."
Others have compared the stock's early performance to Facebook and Twitter, two companies with wildly different fates that both had Snap-esque first public quarters. "Analyzing Snap on current fundamentals is very difficult and I suspect many are making the same mistakes they did with Facebook at the 2012 lows," indie investor Andrew McElroy wrote. "Certainly the sentiment and positioning must be similar as this is reflected in the price patterns."
Seeking Alpha analyst Alex Cho said, "Clearly, the stock has taken a nose dive, but we're not expecting missed execution to continue for much longer, as we believe the fundamental narrative remains solid." In the comments, he explained to a reader, "Instagram has broadcasters [while] Snapchat has your friends."
In the Harvard Business Review, Walter Frick got down to brass tacks: "Spiegel needs to articulate a theory of why Facebook can't copy Snap's product innovations and then use them to capture even more value through its larger network. To date, his answer has been innovation. That puts him firmly on one side of the long-running strategy debate. Is it sufficient to develop capabilities that seem hard for competitors to imitate, like building camera-based social applications? Or does sustainable strategy require more?"