Social media use has risen in the past year as more people have stayed at home due to the pandemic.
One eMarketer report estimates that adults will spend 1 hour and 35 minutes a day on social media this year. Despite this, the report expects Pinterest’s user growth to decline from 7.8% last year to 3.1% this year. Similarly, Snapchat user growth will drop from 4% to 2.6% this year.
Using the TipRanks Stock Comparison: let’s compare two social media companies, Pinterest and Snap, and see what Wall Street analysts think about these stocks.
Last week, Pinterest posted great second-quarter results. The social media company reported revenue of $613.21 million, a huge jump of 125% from the same quarter last year, beating consensus estimates of $561.88 million. Revenues from the US market and international operations were up approximately 107% and 224%, respectively.
In addition, adjusted earnings per share (EPS) came in at $0.25, compared to a loss of $0.07 per share in the year-ago quarter. It surpassed the Street’s estimate of $0.13 per share.
After the Q2 results, analyst from Wells Fargo Brian Fitzgerald reiterated a buy recommendation, but lowered its price target from $102 to $85 (up 44.3%) for the stock, citing “MAU environment and focus on maker dynamics.”
In the third quarter, PINS expects revenues to grow year over year in the “low-40% range”.
On July 27, the company’s Monthly Active Users (MAUs) in the United States are down 7%, while global MAUs are up 5% year-over-year. Second quarter average revenue per user (ARPU) was $1.32, up 89% year-over-year, respectively.
The company added that the “evolution of the COVID-19 pandemic and related constraints remains unknown, and we are not advising on MAUs for the third quarter of 2021, given our lack of understanding of certain key drivers of engagement.” (To see Pinterest stock chart on TipRanks)
Analyst Fitzgerald explained that the company’s engagement trends remain a concern. Global MAUs were still 6% below street consensus, and “the summer through July growth rate of 5% makes it clear that PINS is struggling to add new users as pandemic restrictions ease.”
The analyst added that the company’s management stated that the lack of user engagement in the second quarter was “mainly due to a decline in MAU who use Pinterest on the web, and these users are typically less engaged/generate less revenue than users.” of mobile apps.”
But Fitzgerald mentioned some key positives in the second quarter. Ad revenue was a key driver of revenue growth, driven by strong demand for video or awareness ads. This strong demand was driven by Automated Bidding for Awareness (AutoBid), launched in the second quarter to allow advertisers to focus on simply generating ad impressions.
According to the analyst, nearly 75% of the company’s revenue comes through AutoBid. Other key positives in the second quarter were resilient store engagement and the recently launched Idea Pins, with the number of Idea Pins created daily growing seven times a year.
Idea Pins enables business users to connect with their audience through video content.
As for the rest of the street, the consensus is that PINS is a moderate buy, based on 7 purchases and 10 held. The average Pinterest price target of $72.13 implies an upside potential of about 22.5% from current levels.
Snap calls itself a “camera company” with Snapchat as its flagship. Snapchat is a camera app that allows users to communicate visually with family and friends through images and short videos.
In the second quarter, Snap reported revenue of $982 million, up 116% year-over-year, surpassing Street’s estimates of $845 million. Non-GAAP diluted earnings came in at $0.10 per share, compared to a loss of $0.09 per share in the year-ago quarter. Analysts expected a loss of $0.01 per share.
Also, the company’s daily active users (DAUs) increased 23% year-over-year to 293 million in the second quarter.
In the third quarter, revenue is expected to grow 58% to 60% year-over-year to between $1,070 million and $1,085 million. Adjusted EBITDA is expected to be between $100 million and $120 million. (To see Snap stock chart on TipRanks)
After the Q2 results, analyst from Wells Fargo Brian Fitzgerald raised its price target from $91 to $95 and reiterated a buy recommendation for the stock. The analyst pointed out that user and revenue growth were the highest in the past four years. Fitzgerald added that “iOS 14.5 impact was less than expected due to the delayed rollout and slow user adoption, while opt-in rates for app tracking transparency are higher than industry standards.”
Here the analyst refers to Apple’s (AAPL) Identifier For Advertisers (IDFA) which went into effect this year with the launch of Apple’s iOS 14.5. This development will prevent app developers from tracking a user’s IDFA if a user opts out of sharing privacy information while downloading an app from AAPL’s app store.
Fitzgerald remained convinced that while the ultimate impact of iOS 14.5 has yet to be seen, “SNAP will continue to run on its five major platforms (Stories, Camera, Spotlight, Map and Communications) with consequent strong engagement trends amid innovation, improvement and adoption on multiple fronts (new ad formats, AR tools, optimization, original content, gaming) with a wide runway for monetization.”
According to the analyst, the main positives for SNAP in the second quarter continued to be the addition of new content and strong ad revenue, helped by the delayed impact of iOS 14.5 changes.
The analyst further pointed out that SNAP continues to add new features such as Spotlight on the web, personalization tools and new content monetization capabilities for creators.
Fitzgerald stated that “Spotlight contributed ~$76 million to cost of revenue (QQ decline) [quarter-on-quarter decline] as the product evolves.”
As for the rest of the street, the consensus is that SNAP is a mediocre buy, based on buy 18, hold 7, and sell 1. The average Snap price target of $87.23 implies an upside potential of about 17.2% to the current level.
While analysts are cautiously optimistic about both PINS and SNAP, based on the upside potential over the next 12 months, PINS appears to be a better buy.
Disclaimer: The information in this document is for informational purposes only. Nothing in this section should be construed as a solicitation to buy or sell securities.