Snap's upswing won't be deterred by TikTok's ban

For Snap Inc. stock to recover from a near-70 percent slump in its shares in the past year, more than just talk about the potential for a TikTok ban will be needed.

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Shou Chew, the chief executive of TikTok, will testify before Congress this week in an effort to prevent a US ban on the Chinese-owned site, which would provide Snapchat's owner a much-needed boost.

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TikTok CEO tells Congress China has no influence on US apps

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While a ban would provide businesses with the chance to increase their advertising revenue, larger social media competitors would be better positioned to benefit from a sluggish market. This is because there is more competition for advertising money than before. In any case, such a result is unlikely: according to Eric McNew, portfolio manager at Summit Global Investments, the likelihood of a ban is about 10-15%.

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"To gamble on something with long odds like a TikTok ban is really risky," said McNew. "Snap operates in such a saturated industry, and it has such growth challenges."

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After a prohibition, he suggested, "there might be some short-term impetus." The question remains, however: "After the dust settles, you'll see people returning to Meta and YouTube, and once this potential trigger is over, what's left? ”

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Wednesday saw a 0.4% decline in Snap's share price.

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Consider projections from KeyBanc Capital Markets that a ban would send 90 minutes of daily user interaction time and potential ad dollars toward competing platforms. This will enable you to comprehend the significance of TikTok's position among social media companies.

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The potential for expansion would be broader for Snap than for far larger competitors like Meta Platforms Inc., which has almost 3 billion users in its family of apps. Snap had 375 million daily active users at the end of last year.

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Snap could use such a boost, especially for its investors. The stock's 68% decline in value over the past year contrasts with gains of 7.7% for Pinterest Inc. and a decline of 3.6% for Meta, the parent company of Facebook, which has recently won back Wall Street's favor with aggressive cost cuts, including multiple rounds of layoffs that prompted upgrades from both Morgan Stanley and KeyBanc Capital Markets this week.

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Although the company reduced approximately a quarter of its employees last year, caution is still very much in effect. After lowering their earnings and sales projections during the last three months, less than 20% of experts now advise investors to buy the stock.

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Their reluctance is due to the fact that they are aware of the effects of both a worsening economic outlook and increasing competition, with platforms like Netflix Inc. and Walt Disney Co. now offering streaming video subscription tiers that are ad-supported.

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In light of this, Snap earlier this year predicted its first-ever quarterly revenue decline in what was its third consecutively underwhelming announcement.

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Compared to Meta's 40% rise, analysts project an 85% decline in adjusted earnings this year, according to estimates gathered by Trade Algo.

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Even if TikTok were to be banned, Snap might not stand to gain much even though both sites cater to younger consumers. With its Reels service, Meta, which concentrates more on short-form video content, is reportedly beating TikTok in terms of user engagement.

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Alphabet Inc., the parent company of Google, is viewed as the largest beneficiary of Trade Algo because of its revenue-sharing structure and content-recommendation algorithm, which may attract TikTok content creators to its YouTube platform.

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“If you're talking about eyes and time that would be redeployed, eliminating a top rival would undoubtedly benefit everyone in the industry,” according to David Katz, chief investment officer at Matrix Asset Advisors.

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Since Reels is a service similar to TikTok, he believes Meta will benefit most from a ban. But until it happens, you can't handicap this kind of outcome, he added.

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On Wednesday, Tesla Inc. shares increased 0.5%, extending a rally that followed Moody's Investors Service's upgrade of the electric vehicle manufacturer's bonds. After S&P Global Ratings' decision to grant Tesla investment-grade status in October, Moody's is now the second credit rating agency to do so. Tesla is on track to have its greatest quarter since a 64% gain in the last three months of 2020 thanks to the stock's rise, which increased its quarter-to-date gains to 61%.