Please ensure Javascript is enabled for purposes of website accessibility

Opportunity Knocks as Snapchat Isn't Just for Kids Anymore

By Andrew Tonner – Jul 12, 2016 at 12:03PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

As a Snapchat IPO starts to make more sense in the coming 12 months, the vanishing-video platform faces a similar risk as larger rival Facebook.

Image source: Snapchat.

Snapchat's ascent into the upper echelon of social media has been fueled primarily by its incredible popularity among younger users. Now, as older people are moving to the platform in bigger numbers, the kids are complaining. But Snapchat probably isn't. With the company increasingly focusing on revenue growth en route to an upcoming IPO, it needs to grow its audience and adults are a promising way to do that.

Snapchat's parent problem

As a new report from researcher comScore confirms, "Snapchat isn't just for teens and college-age adults anymore," a claim the company backs up with compelling amounts of cold, hard data.

Case in point, Snapchat's usage among both millennials aged 25-34 and those 35 or older in the U.S. has soared in recent years. Three years ago, only 5% of those between the ages 25 and 34, and 2% of those 35 or older, used Snapchat. Fast-forward to today, and those number have grown to 38% and 14%, respectively. See for yourself:

Image Image source: comScore.

To be sure, Snapchat's popularity among its largest constituency -- those between the ages of 18 and 24, which some deem part of Generation Z -- is at its all-time high, 69%. Therefore, the risk of a mass exodus to the next, shiny social media product seems unlikely. However, a few recent reports suggest that younger users aren't thrilled to see their parents increasingly appear on their vanishing-video app.

Not now, Mom

In a recent article, The Wall Street Journal chronicled the tensions some younger Snapchat users have expressed as their parents flock to the next major social media platform.

The article quoted one Snapchat user's Twitter response to learning a friend's parents just joined Snapchat, saying "Lmao I'm so done my friends parents got Snapchat." 

The loss of any age-related "cool factor" mirrors the history of the world's largest social network: Facebook (META -2.36%). Per the WSJ report, Facebook co-founder and CEO Mark Zuckerberg commented in 2013, a time when older generations were similarly flocking to this service, that "coolness is done for us." Though that hasn't turned out to be a problem for Facebook.

Image source: Snapchat.

Like Snapchat, Facebook started as a phenomenon on U.S. college campuses. Today, Facebook sees roughly 1.65 billion monthly active users (MAUs) and 1.09 billion daily active users (DAUs). Embracing older demographics was certainly a necessary step in Facebook's evolution into one of the world's largest and most prosperous tech companies. The company saw earnings per share increase 17% last year on $3.7 billion in net income, and Facebook's per-share profits are expected to again rise an impressive 99% this year. In order for Snapchat to build a similarly profitable franchise, it will need to embrace older users, much like Facebook has.

A great problem to have

To be sure, Snapchat's problem here is certainly of the "embarrassment of riches" sort. Moreover, if it plans to reach, and eventually exceed, its purported fiscal target of between $500 million and $1 billion in revenue next year, Snapchat will need older users to help drive continued user growth both domestically and internationally. Remember that like rivals Facebook and Twitter, Snapchat's revenue model is largely based on serving advertisements to its users. To continue to succeed, Snapchat must increasingly cater to new users types and age groups.  

Moreover, Snapchat's lofty $20 billion valuation makes catering to a more mainstream cohort of users all the more necessary. This shift was going to happen whether Snapchat's younger users liked it or not.

If it fails to do so, which seems rather unlikely at present, Snapchat could face a fate like the now-cautionary tale that is Twitter. For wholly unrelated reasons, Twitter's user base growth has stagnated in recent quarters, which has led to a roughly 58% decline from its IPO price at the time of writing.

While Snapchat's evolution into perhaps the most important new media platform since Facebook will assuredly create its fair share of growing pains, these kinds of changes are wholly inevitable and should be viewed as a sign of maturity by tech investors everywhere.

Andrew Tonner has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Meta Platforms, Inc. Stock Quote
Meta Platforms, Inc.
$108.78 (-2.36%) $-2.63
comScore Stock Quote
$1.39 (-4.14%) $0.06
Twitter Stock Quote

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.