Facebook, Inc. (FB) and Snap Inc. (SNAP) are two of the world’s most established companies in the social media space. FB’s products include Facebook, Instagram, Messenger, WhatsApp and Oculus. SNAP is known for its creative content.
Forced to stay at home over the last year for social-distancing reasons amid the COVID-19 pandemic, people have been turning to social media platforms in increasing numbers for news and entertainment and to connect with friends and family. To reach this audience, advertisers have also been exploiting social media platforms more actively. As a result, both FB and SNAP have gained and should keep gaining significantly in the coming months.
While FB has returned 53.5% over the past three years, SNAP has gained 231%. Moreover, in terms of the past-month performance, SNAP is a clear winner with 14.4% returns versus FB’s 5.3%. But which of these two stocks is a better pick now? Let’s find out.
FB recently announced that it has been helping law enforcement identify people who posted photos of themselves at the January 6 riots at the U.S. Capitol. The company announced its latest moderation transparency report yesterday and stated that it had removed 6.3 million items regarding bullying and harassment content on its platform in the last three months of 2020, compared with 3.5 million in the previous quarter.
There is speculation now that FB is building an audio chatting product similar to Clubhouse. This month, the company rolled out its Messenger service to its Oculus platform, which is seen as the latest step in the future of communications in virtual reality. Amid an ongoing privacy row with Apple Inc. (AAPL), FB has said it will introduce a pop-up notification for iPhone users outlining the supposed benefits of personalized advertisements.
This month SNAP entered an eight-month partnership with India’s ShareChat’s Moj app to integrate its camera kit into ShareChat’s app. This move marks an important step towards the company’s expansion in the Indian market with its Augmented Reality technology. Also this month, SNAP introduced a feature called Friend Check Up through which it asks users to be connected to their friends but removes the ones that are no longer relevant to ensure more safety.
However, the company has that AAPL’s forthcoming privacy changes could hurt the company’s ad business. Also, on January 14, Kyros Law Offices alerted investors in SNAP that the deadline for filing claims in an investor lawsuit settlement against the company is fast approaching. The shareholder lawsuit alleged that SNAP withheld potentially negative information from investors about competition with Instagram during its r IPO, leading to an SEC investigation and potentially negative consequences to investors.
Recent Financial Results
FB’s revenue has climbed 33.2% year-over-year to $28.07 billion for the fourth quarter ended December 31, 2020. Its daily active users (DAUs) increased nearly 11% year-over-year to 1.84 billion on average, and monthly its active users (MAUs) increased 12% year-over-year to 2.80 billion. Its average revenue per user (ARPU) increased 19% year-over-year to $10.14. And its net income increased 52.7% year-over-year to $11.22 billion. Its EPS was reported to be $3.88, which increased 51.6% year-over-year.
SNAP’s revenue for the fourth quarter ended December 31, 2020 increased 62.5% year-over-year to $911.32 million. Its DAUs increased 22% year-over-year to 265 million, and its ARPU increased 33.3% year-over-year to $3.44. The company narrowed its net loss from $240.70 million in the fourth quarter of 2019 to $113 million. Its non-GAAP EPS of $0.09 increased 200% year-over-year.
Past and Expected Financial Performance
FB’s revenue has increased at a CAGR of 28.4% over the past three years. Analysts expect the company’s revenue to increase 24.8% this year and 19.6% next year. FB’s EPS is expected to grow 38% for the quarter ending March 31, 2021, 12.4% this year and 19.2% next year. Moreover, its EPS is expected to grow at a rate of 21.5% per annum over the next five years.
In comparison, SNAP’s revenue increased at a CAGR of 44.8% over the past three years. The market expects SNAP’s revenue to increase 49% this year and 35.8% next year. The company’s EPS is expected to grow 25% for the quarter ending March 31, 2021, 350% this year and 280% next year. SNAP’s EPS is expected to grow at a rate of 67.4% per annum over the next five years.
FB’s trailing-12-month revenue of $85.97 billion is much higher than SNAP’s 2.51 billion. Also, FB is more profitable with a gross profit margin of 80.6% versus SNAP’s 52.8%.
FB’s ROE and ROA of 25.4% and 14%, respectively, compare favorably with SNAP’s negative values.
So, FB is more profitable.
In terms of forward p/e, SNAP is currently trading at 431.61x, which is much more expensive than FB, which is currently trading at 24.33x. SNAP is also more expensive both in terms of trailing-12-month p/s (36.14x versus 8.97x), and trailing-12-month EV/S (37.23x versus 8.37x).
In terms of trailing-12-month price-to-book, SNAP’s 40.15x is much higher than FB’s 6.0x.
Thus, FB is also more affordable.
FB has an overall rating of B, which equates to Buy in our proprietary POWR Ratings system. However, SNAP has an overall rating of F, which translates to Strong Sell.
FB has an A grade for Quality versus SNAP’s D, given that FB is much more profitable than SNAP. FB is also better in terms of Sentiment; it has a B grade for Sentiment and SNAP has a D grade for Sentiment.
Of the 66 stocks in the D-rated Internet industry, FB is ranked #2 while SNAP is ranked #62.
The POWR Ratings are calculated by taking into account 118 different factors with the weighting of each optimized to improve overall performance.
While the revenue for both FB and SNAP increased in the last-reported quarter, FB’s ARPU is nearly three times higher than SNAP. Also, FB is more profitable than SNAP and is trading at a lower valuation. So, it is wise to bet on FB now.
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FB shares were trading at $269.99 per share on Friday afternoon, down $0.40 (-0.15%). Year-to-date, FB has declined -1.16%, versus a 4.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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