How Much Is Snap Hurting From Facebook’s Imitations?

As Snap stares down its second earnings report, its stock price is hovering somewhere around $13, nearly half of Snap’s share price during its IPO back in March. With its lockup period lifted, Snap’s early investors are now allowed to sell off their stock, and come August 14, its employees will be free to do so as well.

In five short months, the lukewarm response to Snap’s much-hyped IPO has turned the company into something of a cautionary tale for startups eager to go public. (Even Morgan Stanley, which helped take Snap public, downgraded its stock last month.) Will Snap’s earnings report on Thursday change that? Or will it reflect the biggest issue raised by its Q1 earnings results and post-IPO performance—that Facebook could be a serious threat to Snap’s bottom line?

Last quarter, Snap gained 8 million daily active users, bringing its total count to 166 million daily active users. But Instagram Stories—a knockoff of Snapchat’s Story feature—had clocked 250 million daily active users as of June. That makes sense: Instagram had a built-in user base of more than 500 million users when it launched Stories a year ago. For brands and influencers with loyal audiences on Instagram, it’s a no-brainer: Instagram Stories is more intuitive than Snapchat and allows Instagram users to reach their followers without the hassle of switching apps or luring their audience to another platform.

While Instagram is the biggest offender, Facebook has also infused its other platforms—WhatsApp, Messenger, and Facebook’s flagship app—with features borrowed from Snap. In fact, Facebook is enough of a threat that Snap even considered taking the issue to antitrust regulators, as The Information reported today. Also coming down the pipeline is Stamp, Google’s response to Snapchat’s Discover platform, which is already being tested with publishers. All of this seemingly doesn’t bode well for Snap’s user growth—or retention, presumably.

The Value Of A Snapchatter: Now Up To $1.19

That being said, Snap claimed in its IPO filing that it can generate revenue from existing users in developed areas—which, if true, means Snap doesn’t need to rely on bringing in new users. In other words, if Snap can’t lean on user acquisition the way Facebook can, it needs users with disposable income. (You might recall reports—which Snap denied, of course—that CEO Evan Spiegel said Snap wasn’t interested in expanding to “poor countries like India.”)

To that end, while some advertisers may be shifting to Instagram, the likes of advertising giant WPP have decided to invest more heavily in Snapchat this year; Snap has also upped its ad tech to make Snapchat more appealing to larger advertisers. According to Recode, Snap’s average revenue generated per user is estimated at $1.19 for Q2, which is an increase of 138% from the same quarter last year. That indicates slower year-over-year growth than what Snap recorded during the past two quarters, but it’s something for shareholders to hold onto.

Since its IPO filing, Snap has insisted on calling itself a camera company. But one of its biggest investments continues to be content. Snap recently inked a $100 million two-year deal with Time Warner, which will produce 10 original shows per year. Snap also has deals in place with ABC, NBC, ESPN, and countless other media companies. And earlier today, Axios reported that Snap’s first original show, Good Luck America, boasted five million unique viewers per episode during its second season; in total, the show’s second season drew 29 million unique viewers. Maybe—again—Snap is onto something after all.