If we listen, we can learn a lot from our children. This morning, as I was driving my teenage son and daughter to school, a story came on the radio about the Facebook/Cambridge Analytica problem. It prompted a discussion between them, the conclusion of which can best be described as “So what?”. My first thought was that that was the result of childish ignorance but the more I thought about it, the more I realized that it actually came from a generational difference in experience and philosophy that is significant for investors.
It was not that they were unaware of how social media and the digital world in general made their data and preferences visible, it was that they saw it as a reasonable price to pay for their access to social media platforms and other conveniences of modern life. I prompted a discussion on the targeted ads that I and many of my generation find so scary, but for them, they were not weird at all. Receiving them was simply convenient.
My generation grew up all too aware of the dangers of the erosion of privacy, either experiencing or being given first hand accounts of the rise of dictatorships around the world. Thankfully our children have not. Instead they have lived in the modern developed western world, where a combination of market forces, regulations and experience have combined to curb the worst excesses of both corporations and governments.
All that leads to the inevitable conclusion that those who see the stories about privacy and data harvesting that arise as an existential threat to social media are mistaken. The generation that uses the platforms the most understand the dynamic but they of are the “my bad” generation. They have come to expect and accept the kind of immediate, open response to problems that Facebook exhibited and that I wrote about yesterday.
In that article I pointed out that FB recovered some ground based on that response and, current market volatility aside, can be expected to continue that recovery. For traders and investors, however, there is also another opportunity elsewhere that is more relevant to the differences in perception.
Snapchat (SNAP) is much more popular amongst teenagers than Facebook, but the stock has still lost around a third of its value since early February, a move that is in part a result of the general negative sentiment around social media. If my kids’ views are not an aberration, and I don’t think they are, that makes no sense.
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The decline in the stock has brought us back to around the levels from before the company released Q4 2017 earnings. That report showed a beat on all fronts, including EPS, revenue, user growth and revenue per user. The most important of those is the last one, as it demonstrates that Snap is successfully making the transition from free access to revenue generation earlier than others have managed in the past. Meanwhile, they are still finding ways to expand their reach, as evidenced by the recent announcement that they are considering a physical presence in Saudi Arabia.
All too often, traders and investors are unaware of their own biases and simply assume that others share them. The older generation’s unease with the issues around social media is a case in point. The fear that they could have a lasting effect on companies in the industry is not shared by those that grew up with them as part of their daily lives. That makes buying SNAP at these levels in expectation of another strong earnings report in a month or so look like a smart trade.