As the largest US social media companies face several uncertainties, including a slowing digital advertising market and intensified regulatory control, investors have sought to diversify their investments in the digital space. The goal: to gain some exposure in smaller stocks that may be able to offer upside even after the economy is back on track.
In this group we shortlisted Snap (NYSE 🙂 and Yelp (NYSE :). Here's a deeper look at each:
Snap: Turnaround Gaining Momentum
The administrator of Snapchat, the photo sharing app, was a of the most successful turnaround stories of 2019, after it started in the past quarters. During the pandemic, that growth got extra boost as more people turn to messaging apps to stay connected.
Average daily users reached 229 million in the first quarter, while sales increased 44% to $ 462.5 million. Chief Executive Officer Evan Spiegel said his company has enough money to continue hiring and investing in research and development, despite the economic slowdown caused by COVID-19.
"The many difficult transitions and changes we have made as a company in recent years have positioned us well for the challenges ahead," he said in April.
Some analysts agree. They recommend that investors stick with the shares of Snap, which have gained 30% this year. It closed at $ 20.90 on Tuesday, up 0.72% for the day.
"User growth continues to grow, while the company's execution has apparently turned the corner," Bank of America analyst Justin Post said in a recent post. While valuation is high, Snap "has a clear path ahead to generate more revenue from its highly engaged and growing user base."
An important growth engine that distinguishes Snap from other social media players is the augmented reality face filters. These features, such as pink furry ears and other image add-ons, were used daily by an average of 75% of users during the first quarter, which attracted advertisers.
"The app, mainly used for friends to chat through photos that disappear, has also become more popular for other more solitary features, such as games and TV shows on the company's Discover page." , said a recent Bloomberg analysis. "As TV studios lose the ability to film traditional shows, short-form content may gain more acceptance."
Yelp: Hurt By Small Business Exposure
Shares of Yelp, a social app that publishes crowd-sourced company reviews, tells a different story. The stock has been hammered because small businesses, such as restaurants, travel agents, and coffee shops – mainstays of the app's listings – remained largely closed during the first quarter due to closures in much of the Western world.
Fears that the economic recovery in the post-pandemic world may be slower than expected could also depress future supplies.
Although the stock closed yesterday at $ 24.55, an increase of 0.61%, shares for the year have fallen by 27%.
Like a digital phone book, Yelp is essentially a list of companies. Businesses don't pay to be included in the list, but Yelp offers them paid packages to increase their visibility in user searches on the platform.
That model, which relies mainly on small business revenues, is under severe pressure if the coronavirus pandemic continues and will be closely related to the success or slowdown of the reopening economy.
For example, restaurants accounted for 14% of Yelp's advertising revenue in the. They were also the largest category to receive user reviews, accounting for 48% of the total reviews. The beauty and fitness category accounted for 12% of the company's total ad dollars during the same period.
Unlike Snap, Yelp does not provide many additional tools to keep users on the platform or bring back traffic to drive sales. For these reasons, Yelp is currently firing staff and cutting salaries to survive this severe downturn for small businesses.
That said, Yelp is a better bet if you're strongly convinced that a potential vaccine is on the way and will make it back to normal next year so that restaurants and nightlife can function freely again.
Bottom Line
Given the current health and economic risks, Snap is better positioned to take advantage of increased user engagement now and in the coming years. Yelp, on the other hand, is committed to a full economic recovery. And right now, the timing of small business normalization, a critical part of the service, remains difficult to predict.
