Pinterest Inc (NYSE:PINS) is a social media underdog with a lot of potential. With over 454 million monthly active users (MAU), this visual platform is free from much of the political vitriol that seeps into other platforms like Facebook, Inc. (NASDAQ:FB). But it’s a comparatively small business compared to Mark Zuckerberg’s tech giant.
So, which is the smarter buy between Pinterest stock vs Facebook?
The trillion-dollar juggernaut seems an unstoppable force, as it expands its social platforms into a virtual metaverse. But governments around the world are buzzing about antitrust steps that can be taken to help smaller businesses compete.
Meanwhile, Pinterest is making moves to transition into e-commerce. It partnered with Shopify (SHOP) to help bridge the gap for merchants wanting to sell products through the platform’s Pins. As it continues to expand its revenue streams, the company has the potential to one day nip at Facebook’s heels. At a bare minimum, it has plenty more room to grow its top line.
Don’t Label Pinterest A ‘Social Network’
Pinterest is a San Francisco, California-based social image and video platform founded in December 2009 by CEO Ben Silbermann, Paul Sciarra, and Evan Sharp. It quickly grew over the proceeding decade and has over 450 million monthly active users.
As it grew, Pinterest became a catalogue of ideas, and its team resists the label of “social network.” The platform’s pins and boards continue evolving to make it act somewhat as a visual search engine. And brands are continuing to find success as it rolls out advertising and sponsorship opportunities with its influencers.
The platform is especially popular with women, which accounted for over 60 percent of Pinterest’s users according to a 2020 report. Still, its male userbase grew through the pandemic, and that (along with its growing Gen Z fanbase) has many salivating at the investment opportunity.
So, should you buy the dip?
Why Is Pinterest Stock Down?
Although it’s a favorite site of many, Pinterest (PINS) does have some problems that kept its share price suppressed after the initial pandemic pop. First was an August 2020 virtual walkout to raise awareness to toxic company culture.
By December, the company paid former COO Francoise Brougher $20 million to settle a gender discrimination lawsuit.
Beating earnings and revenue estimates in its second quarter 2021 earnings didn’t stop a selloff from cutting 25 percent from the company’s stock price. This was triggered by the loss of 24 million users from the prior quarter, a bad sign for any website.
Still, many investors are bullish on buying the dip because of its earning potential. The company reported $613 million in quarterly revenue, a 125 percent year-over-year increase from the same period in the prior year. It also reported quarterly profits over $69 million, compared to a $100 million loss in the prior year’s quarter.
But there are signs that the stock may not be finished deflating.
TikTok, Snapchat and Instagram Move To Visual
Losing users is a black mark on any company, and even optimistic investors are starting to wonder if the platform can continue to grow at a fast clip.
TikTok, Snapchat, and Instagram all boosted visual e-commerce options to keep their platforms stickier and more profitable for influencers and content creators.
And the company only generates $1.32 average revenue per user (ARPU), compared to Facebook’s $10.12 ARPU. If it can’t find ways to 10x user spending while still growing its userbase, Pinterest could be a stale bet for those jumping in now.
How much better, if at all, is Facebook from an investment perspective?
In 10 Years Facebook Became A $1 Trillion Company
Facebook (FB) grew to a market capitalization of $1 trillion in less than a decade from its 2012 IPO, and it reported a staggering $85.97 billion in annual revenue for 2020. Its Q2 2021 earnings report showed $10.39 billion in net income, more than double the same period of the prior year. Earnings per share (EPS) of $3.61 mirrored that gain.
The social media giant had 2.90 billion MAUs on its namesake platform with another 3.51 billion users on its owned apps like Instagram and WhatsApp.
However, the company faces antitrust hurdles that could strangle growth potential around the world. With that said, recent rulings have gone in its favor.
How Is Facebook a Trillion-Dollar Company?
Facebook’s biggest obstacle is antitrust regulations, and it faced a crackdown from the Federal Trade Commission (FTC). A federal judge for the District Court in the District of Columbia dismissed the case filed by the FTC and over 40 states in June 2021, helping the stock continue its upward trajectory.
As pointed out above, it has the largest user base of any social media company, and it’s earning a generous revenue (& profit) from each user. Not only that, but the company is also building out its vision of the metaverse which includes Oculus VR and more.
The picture isn’t all rosy, though.
The past decade has been rocky for Facebook, as it became embroiled in controversies over the 2016 election, privacy concerns, and more. By 2020, brands were boycotting the company’s advertising platform, and that’s where it derives most of its revenue.
Summing these problems up and including the antitrust issues internationally explains why the stock is trading for a 12-month P/E ratio well below 30.00. While stricter American regulation is held at bay, Europe, Australia, and others are still heavily focused on the social media titan.
Pinterest Stock Vs Facebook: Which Is Best?
Facebook is the largest social media platform on the planet, and has a market cap in excess of $1 trillion. Still, it faces regulatory heat over a slew of concerns, including privacy, misinformation, and possible antitrust. Although the FTC’s case was dismissed, it can still re-file before the end of the year.
Pinterest, on the other hand, has much more room to grow. This visual platform is eschewing traditional “social media” labels and aims to be an internet gateway. If it can succeed in monetizing its existing users, the company has the potential to handsomely reward long-term investors.
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