Social media usage has jumped over the last year, as more people stayed at home due to the pandemic.
An eMarketer report estimates adults will spend 1 hour and 35 minutes each day on social media this year. In spite of that, the report expects that growth in users of Pinterest will fall from 7.8% last year to 3.1% this year. Similarly, growth in Snapchat users will fall from 4% to 2.6% this year.
Using the TipRanks Stock Comparison tool, let us compare two social media companies, Pinterest and Snap, and see how Wall Street analysts feel about these stocks.
Pinterest (PINS)
Last week, Pinterest posted stellar second-quarter results. The social media company reported revenues of $613.21 million, a massive jump of 125% from the same quarter last year, beating the consensus estimates of $561.88 million. Revenues from the United States market and international operations were up about 107% and 224%, respectively.
Additionally, adjusted earnings per share (EPS) came in at $0.25, versus a loss $0.07 per share in the same quarter last year. It surpassed the Street’s estimate of $0.13 per share.
Following the Q2 results, Wells Fargo analyst Brian Fitzgerald reiterated a Buy rating but lowered the price target from $102 to $85 (44.3% upside) on the stock, citing “MAU environment and focus on creator dynamics.”
In Q3, PINS expects revenues to grow year-over-year in the “low-40% range.” For 2021, Pinterest’s strategic priorities remained pinner experience, shopping, and advertiser success.
As of July 27, the company’s Monthly Active Users (MAUs) in the United States have fallen 7%, while global MAUs have risen 5% year-over-year. Average revenue per user (ARPU) in Q2 came in at $1.32, up 89% year-over-year, respectively.
The company added that the “evolution of the COVID-19 pandemic and related restrictions remain unknown, and we are not providing guidance on Q3 2021 MAUs given our lack of visibility into certain key drivers of engagement.” (See Pinterest stock chart on TipRanks)
Analyst Fitzgerald explained that the company’s engagement trends remain a concern. Global MAUs still came in 6% below Street consensus, and “the summer growth rate through July of 5% makes it evident 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 Q2 “was primarily attributable to a decline in MAU who use Pinterest on the web, and these users tend to be less engaged / generate less revenue than mobile app users.”
But Fitzgerald cited some key positives in Q2. Ad revenue was a key revenue growth driver, driven by strong demand in video or awareness ads. This strong demand was driven by the Automatic Bidding for Awareness (AutoBid), launched in Q2 to enable advertisers to focus on driving ad impressions easily.
According to the analyst, almost 75% of the company’s revenues come through AutoBid. Other key positives in Q2 remained resilient shopping engagement and the recently introduced Idea Pins, with the number of Idea Pins created daily growing seven times year-to-date.
Idea Pins enables business users to engage with their audiences through video content.
Turning to the rest of the Street, consensus is that PINS is a Moderate Buy, based on 7 Buys and 10 Holds. The average Pinterest price target of $72.13 implies an approximately 22.5% upside potential to current levels.
Snap (SNAP)
Snap calls itself a “camera company” with its flagship product being Snapchat. Snapchat is a camera app that lets users communicate visually with family and friends through images and short videos.
In Q2, Snap reported revenues of $982 million, a rise of 116% year-over-year that surpassed Street estimates of $845 million. Non-GAAP diluted earnings came in at $0.10 per share versus a loss of $0.09 per share in the same quarter last year. Analysts were expecting a loss of $0.01 per share.
Also, the company’s daily active users (DAUs) increased 23% year-over-year to 293 million in Q2.
In Q3, revenue is projected to rise between 58% to 60% year-over-year to between $1,070 million and $1,085 million. Adjusted EBITDA is anticipated to be between $100 million and $120 million. (See Snap stock chart on TipRanks)
Following the Q2 results, Wells Fargo analyst Brian Fitzgerald raised the price target from $91 to $95 and reiterated a Buy rating on 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 impacts were less than expected on the delayed roll-out and slow user adoption, while App Tracking Transparency opt-in rates are tracking higher than industry norms.”
Here, the analyst is referring to Apple’s (AAPL) Identifier For Advertisers (IDFA) that came into force this year with the launch of Apple’s iOS 14.5. This development will result in app developers being unable to track a user’s IDFA, if a user opts out of sharing privacy details while downloading an app from AAPL’s app store.
Fitzgerald remained confident that while the ultimate impact of iOS 14.5 remained to be seen, “SNAP will continue to execute across its five key platforms(Stories, Camera, Spotlight, Map, and Communications) with ensuing strong engagement trends amid innovation, improvement and adoption across multiple fronts (new ad formats, AR tools, optimization, original content, gaming) with ample monetization runway.”
According to the analyst, key positives for SNAP in Q2 remained the addition of new content and strength in advertising revenues, aided by the delayed impact of iOS 14.5 changes.
Furthermore, the analyst pointed out that SNAP continues to add new features like Spotlight on the Web, personalization tools, and new content monetization opportunities for creators.
Fitzgerald stated that “Spotlight contributed ~$76M to cost of revenue (QQ decline) [quarter-on-quarter decline] as the product evolves.”
Turning to the rest of the Street, consensus is that SNAP is a Moderate Buy, based on 18 Buys, 7 Holds, and 1 Sell. The average Snap price target of $87.23 implies an approximately 17.2% upside potential to current levels.
Bottom Line
While analysts are cautiously optimistic about both PINS and SNAP, based on the upside potential over the next 12 months, PINS seems to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
