Please ensure Javascript is enabled for purposes of website accessibility

Facebook Stories Are Demolishing Snapchat

By Adam Levy - May 20, 2018 at 2:57PM

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

Facebook now has three stories products as big or bigger than Snap's.

Snapchat might have invented the stories format, but Facebook (META 1.70%) is making the most of it.

The company now known as Snap (SNAP 4.59%) introduced Stories -- slideshows of images and videos that disappear after 24 hours -- way back in 2013. It took Facebook until 2016 to realize it was an actual thing, and it quickly grew multiple products to become larger than Snapchat's Stories.

"Instagram was the first to really take off here," Mark Zuckerberg said on the company's first-quarter earnings call. "Facebook started slower but is now growing quickly too. And WhatsApp Status is by far the biggest of these products and continues to grow quickly."

The company would later reveal that WhatsApp Status has 450 million daily users on the same day Snap reported earnings, no less. Most recently, it told TechCrunch that Facebook Stories has 150 million daily users.

For reference, Snapchat has 191 million daily users as of the end of the first quarter, it's growing more slowly than all of Facebook's products, and leaked data revealed it had fewer than 150 million daily Stories users as of mid-September last year.

Importantly for investors, Facebook is going to start showing ads in Facebook Stories, something it's already been experimenting with in Instagram Stories since early last year.

Mark Zuckerberg sitting and smiling.

Image source: Facebook.

An opportunity and a challenge

At the beginning of the year, Zuckerberg said he expects Stories to become more popular than feed posts. Chief Product Officer Chris Cox showed some data at Facebook's recent developers conference indicating that Stories is on pace to surpass feed posts sometime next year.

That's both an opportunity and a challenge for Facebook.

The good news is Facebook has quickly become the leader in the stories format. The bad news is it has a huge advertising business selling ads in feeds.

That means Facebook needs to make ads in Stories just as good, if not better, than ads in its feeds. "If we don't do this well, then as more sharing shifts to Stories, that could hurt our business," Zuckerberg told analysts. "But there's upside, real upside here too, if we do a good job."

Indeed, stories ads offer some compelling advantages over ads in news feed or the Instagram feed. Most importantly, they take up the entire screen and command the user's entire focus. But it's still unclear how users will respond to ads in stories and whether Facebook can show as many ads in the format as it does in feeds.

The move comes at a time when Facebook faces pressure on its ad inventory growth. CFO Dave Wehner warned investors of ad load saturation starting in mid-2016, and over the last three quarters, ad impression growth lagged user growth. Opening up ad inventory in stories could offset some of that pressure, which would reduce the need to rely on higher average ad prices to grow ad revenue.

Cutting into Snap's ad sales

Snap has largely disappointed investors with its earnings results since going public, with analysts repeatedly lowering their expectations for revenue growth. Analysts now expect Snap to bring in $1.19 billion in revenue for 2018, which is close to the expectations they had for its 2017 revenue before the company went public a little more than a year ago.

Opening ad inventory in Facebook Stories and continuing to expand ad sales for Instagram Stories could weigh on Snap's revenue growth going forward. Not only do both products offer potentially broader reach than Snapchat's Stories product, but they benefit from Facebook's superior ad targeting data.

Simply put, the return on investment for advertisers is likely better on Facebook's stories products than Snapchat Stories. And with a finite budget with which to experiment with the format, marketers are more likely to buy Facebook's ads because of the better ROI. And those Facebook ad purchases come at the expense of Snap Ads.

What's more, Facebook's just getting started with ads in stories. It hasn't even touched WhatsApp Status, which has three times as many users as Facebook Stories. And it's shown an ability to grow a stories product even while showing ads; it started monetizing Instagram Stories with 150 million users, and it now has 300 million. Less than 10% of Facebook's monthly active users currently view a story on any given day. That's a lot of runway for growth, and a lot of pressure on Snap.

Adam Levy owns shares of Facebook. The Motley Fool owns shares of and recommends Facebook. 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.
META
$180.50 (1.70%) $3.01
Snap Inc. Stock Quote
Snap Inc.
SNAP
$11.62 (4.59%) $0.51

*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
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

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.