Brokers: Facebook's Instagram losting out to Snapchat

Jefferies survey indicated an increase in time spent on both apps, though Snapchat was taking the lion’s share of the increased time.

Gone in sixty seconds ... or even less, in fact

Snapchat, the “Mission Impossible” style communications app where sent messages self-destruct a few seconds after being viewed, is a thorn in Facebook Inc’s (NASDAQ:FB) side.

Stockbroker Jefferies said that, according to its survey of US internet usage, Snapchat usages is surging with millennials, defined by the broker as the 18-34 age group, and that is prompting brands and advertising budgets to switch to the platform, which spells bad news for Facebook’s photo-sharing app Instagram.

“While our survey suggests Snapchat has not impacted Instagram engagement yet, we believe it has the most to lose given the similarities between the two apps (demographic, messaging focus, image & video sharing),” the broker said.

To quantify the potential impact, Jefferies ran four user growth scenarios for Instagram: consensus (continued strong growth), slower growth, a modest decline, and a steep decline.  

Its analysis suggests Facebook’s 2018 revenue and earnings per share (EPS) could both take a hit of anywhere between 3% and 9% versus current forecasts.

In the short-term the broker is below market consensus with its EPS estimates for the second quarter of this year, and looking further ahead it sees increasing concerns about Facebook’s longer-term positioning with the younger crowd.

“For the holidays, our analysis suggests advertisers could spend up to US$150mln less than expected as brands rapidly allocate budgets to Snapchat. We maintain our below-consensus 4Q [fourth quarter] FB revenue estimates of US$8.0bn vs. Street US$8.15bn,” Jefferies said.

Snapchat’s Ad Partners application program interface (API) opens up its platform to the masses, according to Jefferies, and underpins Snapchat’s target of revenue of around US$1bn in 2017.

The good news for Facebook is that the Snapchat versus Instagram battle is not a clear-cut zero sum game. It notes that its survey indicates an increase in time spent on both apps, though Snapchat is taking the lion’s share of the increased time.

Canaccord Genuity has bumped up its price target for Itron Inc (NASDAQ:ITRI), the energy and water use measuring company.

The move might be regarded as a triumph of hope over experience as the broker confesses the shares have underperformed the broader market for several years, but Canaccord reckons the conditions are now in place to justify buying into the stock.

“We are increasing our price target as we expect (albeit more qualitatively given the limited financials year-to-date) improving sentiment moving into H2/16 [second half of 2016], as underlying secular drivers (analogue to digital, smart, housing starts, solar penetration, etc.) remain supportive and more company specific drivers (recent major win at National Grid Massachusetts, next round of optimization from new chief operating officer/activist, etc.) stay robust – all in a more mergers & acquisitions ‘rich’ market,” the broker said, as it upped its price target to US$50 from US$42.69 previously.

Fiscal first quarter results are expected in the next couple of weeks, and the broker reckons the company will reveal it has held, or even grown, its market share in 2016. The analysts at Canaccord will be hoping for a “fairly exhaustive update” touching upon several items such as the new chief operating officer’s operational assessment and action plan.

Swiss bank UBS is returning to the sector strategy it advised heading into 2016, which is to make half of US equity portfolios Health Care, Tech & Utilities.

It lowered the financials and automobiles sectors to equal weight and raised the utilities to overweight.

“This is because whether the Fed hikes or not  this  year,  we  expect  the dollar to  strengthen and 10yr Treasury yields to  stay  under 2%  well  into next year,” UBS said. 

These macro  trends  are likely to limit  any  advance  in  oil  prices  and  pressure  net  interest  margins on stocks in the financials sector.

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