Snapchat Stock Vs Pinterest: Which Is Better?

Snap Inc (NYSE:SNAP) is a sleeping giant in social media, with over 293 million daily active users. While impressive, it’s lagging rival Pinterest Inc (NYSE:PINS) with 478 million monthly active users. Both have much different roadmaps, but they’re very likely going to merge lanes as they rush to monetize their visual platforms.

Investors in each company’s IPO have already experienced 4x gains, and skeptics argue the best returns are behind both platforms.

Snapchat had several early snafus that led to it being boycotted by popular celebrities and influencers like Rihanna and Marques Brownlee. Meanwhile, Pinterest is still recovering from several accusations and legal proceedings regarding its allegedly “toxic” company culture.

So between the two, Snapchat stock vs Pinterest, which is best?

Is Snapchat Stock a Good Buy?

You may not realize it, but Snapchat has been growing since the pandemic. And both its revenue and active user base in the 2020s is a return to the platform’s early 2010s heyday. The company easily predates Facebook in its vision for the metaverse, and it has over 200 million DAUs on its augmented reality platform alone.

Its most recent earnings report showed 116 percent year-over-year revenue growth at $982 million. This was driven by both its growing user base and the company’s ability to squeeze more money out of each individual user. Average revenue per user of $3.35 in the second quarter of 2021 is a 76 percent increase from the prior year’s period.

The company is also producing its own original content (dubbed Snap Originals) and learning to leverage its on-platform creators. Its partners include Disney, Bumble, and YouTube, and it finally rolled out Public Profiles for businesses to enable “shoppable” products. But has its price run ahead of its intrinsic value?

Is Snap Overvalued?

Snapchat (SNAP) has averaged growth of about 35 percent annually over the past three years. And it’s expected to continue growing faster, with nearly 45 percent annual growth expected over the next five years. Still, it continues losing money, reporting -$0.19 and -$0.10 diluted net loss per share in the first two quarters of 2021.

This is an improvement over the prior year, although the company struggled with negative free cash flow in five of the prior six quarters. 

SNAP shares sell for over 375 times trailing 12-month earnings, which is over five times the industry average of 68.00.

It is also saddled with a relatively high amount of debt, nearly $3 billion which is climbing almost as high as its cash levels, ranking it in the bottom quarter of its industry. The cost of revenue is volatile around 50 percent operating margin, and its projected future revenue growth may not directly translate to investor returns.

Will Snapchat Stock Go Up?

In spite of the balance sheet drawbacks, Snapchat has a rosy outlook for the future. Modest growth in key North American and European markets was outshined by the 55 percent surge of 120 million daily active users in the rest of the world.

Besides expanding around the world, the company is also investing in features like Lens Studio, Spotlight Snaps, API Lenses, and a Creator Marketplace. If SNAP management can successfully foster an on-platform creator community, the term “Snapchat Star” may become commonplace faster than you might think.

The problem remains investors may be unlikely to reap the full rewards of this monetization growth. That has some investors preferring Pinterest.

Should You Sell Pinterest Stock?

Pinterest is a relative dark horse among social media companies, and it doesn’t consider itself a social media firm at all. Rather, it brands itself as an internet portal that’s much more visual and practical.

The company showed 125 percent revenue growth in the second quarter financial results, recording $613 million for the period.

This didn’t affect the stock price though, which dropped as the company’s results were announced. Despite reporting a 41 percent year-over-year increase in its adjusted EBITDA margin, the company reported a drop in users, which is a virtual kiss of death for a social media in the eyes of investors.

Why Is Pinterest Stock Down?

Although it reported a GAAP net profit of $69.4 million in its most recent quarter (compared to a -$100.7 million loss the same period of the prior year), Pinterest stock crashed after its earnings release. This is because its worldwide 454 million monthly active users is a decline of five percent from the previous quarter.

In fact, American users plateaued from Q3 2020 through Q1 2021 before dropping seven percent. This shows that Pinterest users lost interest in the platform as the pandemic’s effects declined. It expected a slowdown, but not by this much.

And things could get worse.

Should users continue to fall beyond expectations through the back half of the year, it could be a sign of bigger problems. As the company continues pushing to monetize its userbase, it risks stigmatizing and alienating them.

That leaves a lane for rivals like Snapchat to find a revenue stream in Pinterest’s visual lane. If Snapchat’s ecommerce initiatives prove to be successful, they could stifle Pinterest growth. And if Snapchat has proven anything it’s that the company is exceptionally innovative.

A further point of concern for Pinterest shareholders is the company’s relatively ARPU vs Facebook or Snapchat. At $1.32 average spending per user, Pinterest is almost 90% lower than Facebook on that metric and about 30% below Snapchat.

Snapchat Stock vs Pinterest: Which Is Best?

Snapchat and Pinterest are two massive visual platforms that are growing revenues despite not getting the same media buzz as their rivals. Each company is increasingly improving its monetization of users. Snapchat faces the hurdle of Facebook quickly responding to its new innovations while Pinterest may have a more significant product problem given that it has lost users. That gives Snapchat the edge for the foreseeable future.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.