Throughout the pandemic, social networking sites saw increased user engagement and advertising revenue flowing to these platforms. With tech giant Facebook facing difficulties, we look at two alternative social media companies and ask which is a better investment?
Snap Inc: Bull vs Bear arguments:
Snap Inc (NYSE: SNAP) is a self-proclaimed “camera company” but is best known for its social networking app, Snapchat.
Snapchat is used by a staggering 75% of the U.S. population between the ages of 13-34 and reported 293 million daily active users (DAUs) in Q2. This increase of 23% year-over-year (YoY) is in stark contrast to Q2 2018, where users were declining.
Snaps filters or lenses were the beginning of its AR capabilities and are the first step towards “achieving overlaying computing in the real world”. Snap released its Spectacles in May, which attempts to do just that. Its AR offerings are being used for advertising by companies. It is positioning itself to be the replacement for showrooms and malls for brands.
In Q2 2021, Snap reported revenue growth of 116% YoY, to reach $982 million with improving gross margins of 55%. The average revenue per user also jumped by 76% YoY to reach $3.35, and Snap continues to invest outside North America to capture a global opportunity.
The company is still losing money with a $174 million loss in Q2. It is also trading at a rich valuation of 35X sales, which prices in much optimism as it will have to continue to innovate and engage its young user base.
Pinterest: Bull vs Bear arguments:
Pinterest (NYSE: PINS) is a social media platform founded in 2009 that allows users to search for particular topics and create ‘boards’ or ‘pin’ pictures and videos.
Pinterest operates in a unique area between e-commerce and social networks and now has 454 million monthly active users. It aims to help its users discover things and to inspire its users while providing a positive experience. It has also partnered with Shopify to allow merchants to create shoppable pins.
Pinterest’s platform typically attracts users who are planning for significant life events. During these times, consumer habits change, and they are also likely to spend large amounts of money, which means Pinterest’s platform is attractive to advertisers.
In Q2 2021, revenue was $613 million, an increase of 125% YoY due to revenue from large advertisers and international growth, and posted a profit of $69 million. ARPU continues to increase, and the U.S. generated $5.08 per user compared to internationally of $0.36 per user, which leaves a runway for growth with Pinterest targeting the international market.
Pinterest’s user growth came in lower than expected in Q2 and is something investors should keep an eye on, and it also did not provide guidance for MAUs for Q3. A stunt in users joining the platform could hurt growth.
So, which stock is a better buy right now?
Pinterest appears to be a better buy today due to its strong business that continues to attract and monetize users, and after its recent dip could be a good buy given Snap’s valuation.
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Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.