FA Alpha Daily

Another beneficiary of TikTok probation

Forget the dance trends and viral challenges – a potential TikTok ban could spark a major shift in the social media landscape. With millions of U.S. users potentially leaving the platform, Snap is poised to become a prime beneficiary with its established Spotlight feature. In today’s FA Alpha Daily, we explore how Snap can leverage this opportunity to supercharge its user base, ad revenue, and overall financial health.

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Thursday Uniform Accounting Analysis
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Last week, we discussed the Senate passing a bill that would ban TikTok in the U.S. if its parent company ByteDance does not sell it to an American firm within six months.

The potential exit of a company with over 150 million monthly active users from one of the largest social media markets would be hugely disruptive.  

Two companies that could benefit significantly from a TikTok ban are Meta Platforms (META) and Snap (SNAP).

Meta, which owns Facebook, Instagram, and WhatsApp, has seen user growth slow on its core Facebook platform in key markets like the U.S. and Europe.

Banning TikTok could provide an opening for Meta to regain lost ground, especially with younger users who have gravitated towards TikTok’s short video format.

Meta has been aggressively promoting Instagram Reels as an alternative, investing heavily in content and creator incentives to drive engagement on the feature.

Snap has also been making a strong push into short videos with Spotlight. In its Q1 2024 earnings, Snap reported revenue of $1.195 billion, up 21% year-over-year, beating estimates. It also narrowed its net loss significantly.

Snap credits Spotlight for this growth. However, a ban on TikTok could be an additional growth lever.

If required to exit the market, TikTok would leave behind a huge vacuum of engaged young video consumers and a large advertising opportunity. Snap would be well-positioned to acquire segments of this displaced audience.

More users on its platform means greater opportunities to generate ad revenue and data-driven insights to fuel further product innovation. It could also relieve competitive pressure that has intensified as TikTok rose rapidly in popularity globally.

Capturing even a fraction of TikTok’s U.S. users could be tremendously boosting. It would aid Snap’s goal of continuing to grow its user base after several quarters of slowing user addition rates.

Additional advertising demand shifting to Snap from former TikTok users could further lift Snap’s monetization ability.

This makes Snap one of the most direct beneficiaries should a ban on TikTok come to pass in its largest market. Such an outcome may prove critically important for sustaining Snap’s recent financial momentum.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

The Uniform Accounting insights in today’s issue are the same ones that power some of our best stock picks and macro research, which can be found in our FA Alpha Daily newsletters.

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