Facebook, Inc. (FB) and Pinterest, Inc. (PINS) are two of the world’s biggest social media platforms. Given people’s heightened engagement with social media amid the pandemic, FB and PINS have witnessed solid sales and earnings since last year. In fact, its rising popularity led FB to cross the trillion-dollar market capitalization mark recently.
Both companies have reported impressive results for the second, quarter ended June 30. FB’s total revenues for the quarter increased 56% year-over-year to $29.08 billion, registering its fastest growth since 2016. In comparison, PINS’ revenues improved 125% from the same period last year to $613.21 million.
FB’s net income and EPS increased 101% from the prior-year quarter to $10.39 billion and $3.61, respectively. In comparison, PINS’ net income and EPS came in at $69.42 million and $0.10, respectively, indicating a substantial improvement from their negative year-ago values.
PINS has gained 133.8% over the past year, while FB has returned 51.9%. However, FB is the clear winner with 30.4% gains in terms of year-to-date performance, versus PINS’ 10.6% decline. Also, shares of FB have gained 2.5% over the past month, while PINS’ shares have declined 25.4% over this period.
So, which stock is a better buy now? Let’s find out.
FB recently launched a prayer tool for group chats, catering to the religious community. Facebook app head Fidji Simo said, “One of the biggest communities using Facebook products to connect are people of faith…When I looked at the data of what was taking off during the pandemic, we were seeing massive growth in the spiritual category.” Given the rising number of people focusing on religion amid the pandemic, FB’s new feature is expected to boost the platform’s revenues.
On June 30, PINS announced its plans to expand its multi-page video Pin format to all creators across 14 countries. Since January, the number of Idea Pins has grown almost four times and should witness further growth through this international expansion.
Expected Financial Performance
Analysts expect FB’s revenues to increase 34.8% in its fiscal year 2021 and 19.3% in 2022. The company’s EPS is expected to rise 30% in the current year, 16% next year, at a 23.7% CAGR over the next five years.
The Street expects PINS’ revenues to rise 53.3% in the current year and 32.9% in 2022. The consensus EPS estimates indicate a 116.7% year-over-year rise in its fiscal year 2021 and a 42.9% year-over-year improvement next year. Also, analysts expect PINS’ EPS to rise at a 240.1% rate per annum over the next five years.
Both the companies have impressive earnings surprise histories; they surpassed the consensus EPS estimates in each of the trailing four quarters.
FB’s trailing-12-month revenue is 46.57 times PINS’. In addition, FB’s 80.98% trailing-12-month gross profit margin is slightly higher than PINS’ 77.6%.
FB’s net income margin and levered free cash flow margin of 37.18% and 21.7%, respectively, compare favorably with PINS’ 7.18% and 15.02%.
Thus, FB is the more profitable stock.
In terms of forward P/E, FB is currently trading at 25.41x, which is 80.7% lower than PINS, which is currently trading at 131.86x. In addition, FB’s 1.14 non-GAAP forward PEG ratio is 76.6% lower than PINS’ 4.88.
FB’s 9.68 and 20.35 respective trailing-12-month Price/Sales and Price/Cash Flow multiples compare favorably with PINS’ 16.30 and 98.74.
FB has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. Conversely, PINS has an overall C rating, which translates to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
FB has an A grade for Quality. This is justified because its 31.3% trailing-12-month ROE is 404.6% higher than the 6.21% industry average PINS, in contrast, has a B grade for Quality. The company’s 7.32% trailing-12-month ROE is 17.8% higher than the 6.21% industry average, which is in sync with the Quality grade.
FB has an A grade for Sentiment. Of the 30 Wall Street analysts that rated the stock, 26 rated it Buy, while three rated it Hold and one rated it Sell. In comparison, PINS has a C grade for Sentiment because only seven of the 17 Wall Street analysts that rated the stock have rated it Buy, while 10 rated it Hold.
Of the 74 stocks in the Internet industry, FB is ranked #4, while PINS is ranked #22.
PINS’ impressive earnings growth rate reported in the most recent quarter and expected performance in the coming years gives it a slight edge over social media giant FB. However, the Schall Law Firm has filed a class-action lawsuit against PINS due to alleged violations of federal securities laws and false and materially misleading public statements. These factors, coupled with PINS’ higher valuation and lower profitability, we think make its rival FB the better buy here.
Our research shows that the odds of success maximize when one bets on stocks with an overall Strong Buy or Buy rating. View the top-rated stocks in the Internet industry here.
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FB shares were trading at $353.18 per share on Monday morning, down $3.12 (-0.88%). Year-to-date, FB has gained 29.29%, versus a 18.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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