Both stocks have witnessed a sharp decline in recent months, but can these social media stocks rebound, and which is a better buy today?
Feb. 11, 2022
The social media market is more competitive than ever, with newer entrants such as TikTok attracting users. With both of these companies relying on the digital ad market and experiencing a myriad of problems, we ask which stock is a better buy?
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 arguably provides a more positive experience than other platforms. Much of its users turn to Pinterest when they are looking for inspiration around significant life events such as weddings, home renovations, and more. This makes it an ideal place for companies to advertise as, during these major life events, people are inclined to spend more.
Pinterest continues to monetize its userbase with revenue increasing by 20% year-over-year (YoY) in Q4 of 2021. The average revenue per user (ARPU) grew by 23% to $1.93 while international ARPU continues to climb, which is vital for long-term success. It also reported a profit of $175 million in the quarter.
The company continues to add new features to capitalize on the online video trend, such as a ‘Watch Tab’, which has seen early traction and the introduction of ‘AR Try On For Home Decor’. These features should help attract both customers and advertisers.
However, the level of turnover is concerning with seven senior executives having recently left the company, and perhaps most notably its co-founder Evan Sharp and chief revenue officer Jon Kaplan. Pinterest also changed its definition of monthly active users and reported a slowdown in users, decreasing 6% YoY to 431 million. This is a significant decline from 478 million in Q1 2021, and Pinterest will have to try and reverse this downtrend.
Meta Platforms (NASDAQ: FB), or Facebook, was founded in 2005 by CEO Mark Zuckerberg and is the largest social media platform globally.
Due to its 2.91 billion monthly-active-users, across its platforms such as Instagram, Whatsapp, and Facebook it has a competitive advantage due to its network effect. Despite its size, the company continues to grow its revenue and reported revenue growth of 20% YoY in Q4 of 2021, along with a profit of $10.3 billion.
Its large cash reserves, which totaled $48 billion in the latest quarter, allowing it to invest for the future. Its latest name change demonstrates its focus on the metaverse and possibilities for working, connecting and more. Its partnership with Ray-Ban and its acquisition of Oculus in 2014 demonstrates this.
Facebook also reported its first decline in daily active users in 18 years, highlighting the competitive nature of the social media market and is a significant concern. There is also a large regulatory risk that is likely to remain and its investment in the metaverse is also significantly impacting its bottom line.
So, which is a better buy right now?
Despite its issues, Pinterest appears to offer greater upside potential due to its size with less regulatory and other risks and is a better buy right now.