Break (NYSE: SNAP) and Pinterest (NYSE: PINS) are both fast growing social media companies that have successfully thrived in FacebookThe shadow. I already compared these two companies last October and said that Pinterest’s higher growth rates made it the most attractive purchase.
However, Snap shares have risen by over 80% since I made that call, while Pinterest shares have fallen by more than 10%. Let’s see why Snap has outperformed Pinterest by such a large margin, and whether or not it will remain the strongest social media stock.
The impact of the pandemic on Snap and Pinterest
Snap’s Snapchat and Pinterest both initially struggled with slower ad spending during the height of the pandemic. However, both platforms continued to gain new users throughout the year.
Snapchat’s Daily Active User (DAU) count increased 22% to 265 million in 2020, then increased 23% year on year to 293 million in the second quarter of 2021. Its strong sequential growth in the first two quarters impressed investors and propelled the stock to Snap again. summits this year.
Pinterest’s monthly active users (MAUs) grew 37% to 459 million in 2020, but grew only 9% year-on-year to 454 million in the second quarter of 2021. This sequential loss of MAU, which s ‘is produced entirely in the second quarter, has raised concerns. on a post-pandemic slowdown and has caused Pinterest shares to drop nearly 30% in the past three months.
Snapchat’s growth has been more fluid as its DAUs primarily used the platform to communicate with friends, watch Discover videos, use augmented reality (AR) lenses, and play built-in games. These engagement rates were not related to home care measures or reopening trends.
The growth of Pinterest’s MAU came to a halt as many of its new users joined the platform to explore home activities such as recipes, crafts, home improvement projects, and family activities all. throughout the pandemic. But when people started leaving home, they spent less time on Pinterest.
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Snap’s revenue grew 46% to $ 2.51 billion in 2020 and jumped 91% year over year to $ 1.75 billion in the first half of 2021 from the initial impact of the pandemic on its advertising sales a year earlier.
Analysts expect Snap’s revenue to grow 68% to $ 4.2 billion for the full year, and the company expects its revenue to continue growing by around 50% per year. year over the next few years. Snap believes it can achieve this ambitious goal by expanding its self-service advertising platform, selling a higher mix of more expensive video and augmented reality ads, and creating a “social shopping” ecosystem with visual searches.
Pinterest revenue grew 48% to $ 1.69 billion in 2020, then jumped 102% year-over-year to $ 1.1 billion in the first half of 2021, the increase of its average revenue per user (ARPU) and the recovery of the advertising market offsetting its sequential loss of MAU.
Pinterest expects to experience more “headwinds to engagement” as COVID-19 restrictions are relaxed globally, but analysts still expect its revenue to grow 55% to 2 , $ 62 billion for the entire year. Unlike Snap, Pinterest didn’t provide any long-term direction for the next few years.
Profitability and valuations
Snap remains unprofitable on a GAAP basis, but its net loss declined year over year from $ 631.9 million to $ 438.5 million in the first half of 2021. It also generated a Positive Adjusted EBITDA of $ 115.7 million, compared to a loss of Adjusted EBITDA of $ 176.8. million euros in the first half of 2020. Analysts expect the company to generate its first non-GAAP profit this year.
Based on analysts’ expectations, Snap is trading at 90 times forward earnings and 27 times this year’s sales. The stock is not cheap, but it is reasonably priced if it can generate sales growth of around 50% for a few more years.
Pinterest turned profitable on a GAAP basis in the first half of 2021 with net income of $ 47.7 million, compared to its net loss of $ 241.9 million in the first half of 2020. Its adjusted EBITDA of 262 million dollars also marked a marked improvement over its adjusted EBITDA of $ 262 million. EBITDA loss of $ 87 million one year ago.
Pinterest is trading at 38 times futures earnings and 13 times this year’s sales. It’s fundamentally cheaper than Snap, but its lower valuations reflect its uncertain post-pandemic growth. If Pinterest’s MAUs stabilize and start rising again sequentially, its stock could benefit from a higher premium again.
The short-term winner: Snap
I own both stocks, but I think Snap will outperform Pinterest over the next year because it isn’t losing active users and isn’t facing a post-pandemic slowdown. Pinterest’s stock could recover if its user growth stabilizes over the long term, but Snap’s stock is expected to continue to attract more bulls until that happens.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.