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Snapchat Causes Facebook To Crack


The total number of daily active users isn't as important as the amount of time spent and the amount of original content shared on the app.

Snapchat has almost 100% of its content originally uploaded to its app meaning it is stealing share from Facebook.

Snapchat users engage with video at potentially a 15 times higher rate than Facebook users.

I'm short Facebook and have traded around this short bias successfully.

Facebook's (NASDAQ:FB) share price has mimicked its rapid growth in monthly active users and daily active users. Most bullish individual investors cite these statistics. I have done the same in my articles about any of the social media companies. From an investor relations standpoint, these stats are excellent because they post a very rosy picture of the business. Who wouldn't want to invest in a company with the chart below? There's nothing like uniform constant growth without any blips.

Even Twitter's (NYSE:TWTR) chart of its monthly active users doesn't look that bad. If you were looking at this chart, you would have missed the stock's peak in early 2014. From Q3 2013 to Q4 2013 Twitter's monthly active users grew 4%. This was the latest report going into the stock's peak. Facebook's monthly active user growth last quarter over quarter was about 3%. This isn't to say that Facebook's stock is guaranteed to peak this quarter just because of similar monthly active user growth metrics. My original point is to argue against this stat which the founder of Seeking Alpha, David Jackson, described as a vanity metric. The point is merely that Facebook has been better received than Twitter ever was besides the IPO time period.

The reason for this article is the recent news reported by The Information which said Facebook was meeting in London to combat the original sharing problem. 57% of Facebook users accessing the app every week posted and 39% shared original content. Original broadcast sharing was down 21% as of mid-2015 and down 15% as of earlier this year. Total sharing was down 5.5% because of the outperformance of third-party sharing.

These data points are a better way to measure social media websites than the number of users. They can be considered a leading indicator to the total daily active users. The ratio of daily active users to monthly active users basically tells investors how many of the monthly active users are real users, as someone who checks Facebook once per month for 15 minutes is almost worthless to the firm. Facebook should do a better job of reporting the amount of time spent on its properties and the quality of content shared.

As you can see from the chart below, mobile users spend the most amount of time on Facebook. The problem with this statistic is that it means there is a dramatic difference between what is categorized as a user and the amount of time the average user spends on its site. Another way of saying this is that the total time spent on Facebook could go down from 30 minutes to 20 minutes while the number of monthly and daily active users increases. While it is great that Facebook is popular currently, investors care about the rate of change. Twitter stock went down as its monthly active user count increased, so the same thing can happen at Facebook. In a sense Facebook has more to lose than...