Snapchat is One of Facebook's (FB) Biggest Long-Term Threats

January 14, 2013 4:54 PM EST
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Deustche Bank was overwhelmingly bullish in its upgrade of Facebook (NASDAQ: FB) Monday. However, one of two long-term issues the firm highlighted was pesky newcomer Snapchat.

Snapchat is a mobile app that allows users to send photos to individuals or groups that disappear after a few seconds (1 to 10 seconds). As of December 26, 2012, Snapchat had 50m snaps shared every day, up from 20m in October, with one billion snaps sent in total since launch, the analyst notes. The app target demographic is users between 13 and 25 years old, with a growing 40 and over user base. It is ranked at #5 in the iOS App Store category for free apps.

While many believe Snapchat is simply used for "sexting," Deustche Bank's analysts think this is just a minority of the user base. The fact is, users could be using Snapchat because it's the anti-Faceook.

"In an age when young people are constantly being warned not to post inappropriate things online for risk of future employment or college admission, Snapchat offers a degree of freedom by letting users share unfiltered images without fear of reprisal," the analyst noted. "In other words, users are communicating with Snapchat precisely because it's not like chatting with Facebook."

In reaction to Snapchat's popularity, Facebook rolled out a nearly identical application called Poke in December 12. After debuing at #1 on the App Sote, it has since fallen out of Apple's top free 100 apps. A newer version for Google's android sits at #33 in the Google Play store.

"While Snapchat is clearly winning in popularity, we believe the larger issue here is a
potential shift in user behavior," the analyst notes.

The "expiring content" model could pose a threat to Facebook;s "share everything" model, Deustche Bank worries.

"The adoption of self-destructing pictures could signal a generational shift in user behavior. Users who have grown up with Facebook in their daily lives are aware that everything they share is watched by friends, family and the public. Every status change or photo upload is instantly telegraphed to the wider community and is archived for months and years, only to reappear again in a user's Timeline or Year in Review feature. Tools like Snapchat give users freedom to share without the pressure of every interaction being publicly analyzed. New expiring content services like Snapchat and others (which seem to make a ton of sense to all demos) fly in the face of FB’s core mission of information transparency and could cause declines in frequency for FB mobile newsfeed, or worse, user defections."

While the analyst doesn't speculate, Facebook could simply buy Snapchat like it did with Instagram. Facebook paid $1 billion for Instgram.

In addition to Snapchat, the other long-term issue facing Facebook, according to Deutsche Bank, is that the user experience could diminish with higher monetization and ad load. "As Facebook increases ad frequency in mobile, the user experience may diminish and the company runs the risk of declining engagement," the analyst notes.

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