Morgan Stanley analyst Brian Nowak thinks that concerns about Snapchat’s threat to Facebook are overblown.
“We don’t believe Snapchat is having a material impact on FB’s engagement or daily active user (DAU) growth,” he writes in a note to investors on Monday.
Nowak says that he’s seen a fear about Snapchat eating away at the attention of Facebook’s younger audience reflected both in conversations and in the company’s stock price.
Andrew Left at Citron Research, for example, has categorized Snapchat as a major threat to Facebook’s growth.
But Nowak’s analysis points to Facebook actually seeing strong daily active user growth this quarter for 18 to 24 year olds, the demographic most likely to be pulled away by Snapchat’s disappearing messages and new cartoon avatars.
He also believes that the ratio of its daily active to monthly active users — which is the best regular measure Facebook gives on how engaged its audience is — will continue to rise, and will even hit its largest increase since Q1 2015.
“This higher engagement leads to more ad impressions and higher overall monetisation as we lift our ad revenue estimates by ~1% in 2016 and ~2% in 2017,” he continues.
Although Nowak admits that he’s seen mixed data about how much time users are spending on Snapchat versus Facebook, the projected increase in engagement has him pegging Facebook’s Q2 profits between 2 and 8% higher than the rest of Wall Street.
Here’s Morgan Stanley’s estimate for Facebook’s rising DAUs:
And here’s how it sees its rising DAU to MAU ratio:
Facebook reports its Q2 earnings on Wednesday, July 27.
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