“Nick, I want to buy Snapchat.”
Six months ago, my wife told me she wanted to buy shares in social media company Snap. The company’s Snapchat messaging app is popular among young people.
She made the request right before the company went public on March 2.
My simple reply: “No.”
Nothing makes me grumpier than fad stocks. These types of companies don’t make any money.
“Snapchat is just something kids use to send pictures to each other instead of meeting in person. And millennials are stingy… They don’t buy anything. Companies aren’t going to pay anything to advertise there.”
“Isn’t that what you told me about Facebook a few years ago?” she replied.
My wife wanted to buy Facebook back in 2014. That’s when it was about $60 per share.
But I talked her out of it… I cited conventional Wall Street “wisdom” at the time.
The Street didn’t think Facebook would make money because most of its users were young… And youngsters don’t click on ads and buy products.
Wall Street turned out to be wrong. And my wife ended up being right.
Since I talked her out of buying Facebook, the stock is up almost 200%.
Here’s the trend my wife saw that I didn’t: Facebook’s user base was getting older.
I think she may be onto something again with Snap.
Following in Facebook’s Footsteps
During our discussion, my wife said something that drew my attention.
“It’s not just millennials using Snapchat,” she said. “Your mom uses it to share things with her sister. They’re not millennials.”
She had a point…
When Facebook first launched in 2004, only college kids could sign up for the website. Later, high schoolers could join.
But it wasn’t until Facebook opened the website to all ages that it really started to make money.
Let me explain…
From 2004-2012, most of Facebook’s users were between the ages of 13-34. Today, the average Facebook user is about 41 years old.
That’s a big—and profitable—change.
The U.S. Bureau of Labor Statistics surveys household spending every year.
According to its 2013 survey, the average household of people under 35 spends $28,000 per year.
The average household aged 35–65 spends $40,000. That’s 43% more than the younger demographic.
You can see in the chart below that as Facebook’s user base matured, its revenue increased.
If Snap starts to attract an older audience, then it will likely sell more ads and increase revenues… Just like Facebook did.
And Snap is working hard to do that.
Getting More Profitable With Time
Today, 85% of Snap’s users are under 35 years old. That’s a greater percentage of young users than Facebook had when it went public.
But in the last quarter, half of Snap’s new users were over the age of 35. That demographic includes my mother and aunt.
Just like Facebook, Snapchat’s user base is maturing.
My wife was right. Snap is following in the footsteps of Facebook.
“Okay, okay… I give in. We can get some Snapchat. But can we wait six months?”
September 5 will be six months since we had that conversation.
Tomorrow, I’ll tell you why that might be a good time to consider buying Snap.
Nick Rokke, CFA
Analyst, The Palm Beach Daily
From Richard D.: A “currency" created out of thin air by anonymous entrepreneurs who have nothing to back it up… And somehow, they’ve exploded in value?
The gigantic cryptocurrency bubble will eventually pop. And they’ll go back into the thin air from where they came. I don’t know when the bubble will pop, but I sure don’t want my money to disappear when it does. Anyone can create one at any time. How long do you think it will be before there are thousands of them?
From Janis P.: I was just reading about the latest bitcoin fork and it raised a question. You say a cryptocurrency fork is like a corporate spin-off. But how is this different from “quantitative easing” the Fed used to create new dollars out of thin air?
Nick’s Reply: Guys, you raise some good questions.
First, bitcoin isn’t created out of thin air. It’s created by thousands of supercomputers around the world.
And second, the bitcoin blockchain builds trust. We know the exact amount of bitcoin on the market and where it is at all times. (Owners of bitcoin are anonymous; the coins themselves are linked to private alphanumeric keys.)
No government currency is that transparent.
As for the growth of cryptocurrencies… There are already over a thousand in existence. And the bubble hasn’t popped yet. Will bitcoin go straight up forever? No. Nothing does. But that doesn’t mean it will eventually be worthless.
Look at the 2000 internet bubble. Thousands of dot-com companies popped up. Yes, most went bankrupt. But that didn’t stop Amazon, Microsoft, and Apple from becoming the biggest companies in the United States.
If you’re still skeptical about bitcoin and other cryptocurrencies, we want to hear your concerns. Let us know what’s keeping you from investing right here.
Last year, he called the No. 1 stock on the Nasdaq and made investors 551%…
This year, he’s back to show you how you could ultimately make between 414% and 2,100% on Apple’s new iPhone launch. You can’t afford to miss this.