PINS: Pinterest vs. Twitter: Which Social Media Stock is a Better Buy?

Twitter, Inc. (TWTR) and Pinterest, Inc. (PINS) are two of the world’s leading social media platforms. With stay at home conditions reigning worldwide, these platforms saw a rise in users as people sought to stay connected and updated with recent events.

Based on these factors, we think, both TWTR and PINS should witness significant growth in the upcoming months.

While TWTR has returned 57.1% over the past year, PINS gained 272.7%. In terms of year-to-date performance, PINS is a clear winner, returning 275.1% versus TWTR’s 48%. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

Earlier this month, TWTR expanded its hateful-conduct policy to prohibits language on the platform that disparages people based on race, ethnicity, or national origin. In partnership with UN Women, TWTR launched custom emojis to spread awareness of International Day for the Elimination of Violence Against Women, which was on November 25^th.It will also launch custom emojis in partnership with the UN Human Rights Office to spread awareness of Human Rights Day on December 10^th.

The company announced its plans to relaunch account verification, including a new public application process, in early 2021. It launched ‘Fleets’ last month. Fleets cannot be retweeted, shared, liked, or publicly commented on. It disappears after 24 hours so people feel more comfortable to share personal and casual thoughts, feelings, and opinions. It is designed to increase the time users spend on the platform.

TWTR appointed ‘ethical’ hacker Peiter Zatko as the new head of security. Also, the company recently updated its account security.

PINS recently, introduced its latest collection of merchant tools to help retailers target more customers this holiday season and beyond, including a new storefront profile, faster catalogs feed ingestion, collections as a shopping ad format, video for collections, automatic bidding, conversion insights and analysis, and an improved product tagging test.

10 STOCKS TO SELL NOW!

PINS launched the Pinterest widget for iOS 14 to make it possible for its users to feature a board of their own or one they follow and to see daily inspiration right on their iPhone home screen. The company also integrated with Microsoft Edge so that users can find relevant pins more easily and even export them to their profile.

The company launched a suite of creator-first features in September, including Story Pins. These new publishing and measurement tools are expected to give creators ways to easily publish immersive and expansive stories directly and reach users looking for inspirational ideas and people to follow.

Recent Financial Results

TWTR’s revenue for the third quarter ended September 2020 increased 13.7% year-over-year to $936.2 million, driven primarily by greater investments from the advertisers.

The company’s revenue from advertising increased nearly 15% year-over-year to $808 million, with 27% year-over-year increase in total ad engagements. While US revenue increased 10% year-over-year to $513 million, international revenue increased 18% to $424 million. The Average Monetizable Daily Active Usage (mDAU) increased by 29% year-over-year to 187 million. EPS increased 11.8% year-over-year to $0.19.

PINS’ revenue surged 58.2% year-over-year to $442.6 million in the third quarter ended September 2020. While US revenue increased 49% year-over-year to $374 million, international revenue increased 145% year-over-year to $69 million. The Average Revenue per User (ARPU) increased 15% year-over-year to $1.03. PINS’ Global Monthly Active Users (MAUs) increased 37% year-over-year to 442 million. EPS increased 1200% year-over-year to $0.13.

Past and Expected Financial Performance

TWTR’s revenue increased 2.2% in the past year. The market expects the company’s revenue to increase 16.7% for the current quarter ending December 2020, 4.4% this year and 21.6% next year. TWTR’s EPS is expected to grow 16% in the current quarter, 36.4% for the quarter ending March 2021, and 225.4% next year.

PINS’ revenue increased 36.5% in the past year. The market expects PINS’ revenue to increase 60.7% for the current quarter ending December 2020, 42.6% this year and 41.5% next year. The company’s EPS is expected to grow 166.7% in the current quarter, 80% for the quarter ending March 2021, and 117.2% next year.

Thus, PINS has an edge over TWTR here.

Profitability

TWTR’s trailing-12-month revenue is 2.47 times what PINS generates. However, PINS is more profitable with a gross margin of 70% versus TWTR’s 63.7%.

TWTR’s leverage free cash flow margin of 9.7% compares favorably with PINS’ 6.2%.

Valuation

In terms of trailing 12-month price/sales, PINS is currently trading at 31.38x, which is much more expensive than TWTR, which is currently trading at 10.82x. Moreover, PINS is more expensive in terms of EV/Sales (30.08x versus 9.99x).

In terms of trailing-12-month price-to-book, PINS is trading higher than TWTR (PINS’ 22.24x versus TWTR’s 4.81x).

Though PINS looks much more expensive compared to TWTR, we think it is worth paying this premium considering PINS’ significantly higher earnings growth potential.

POWR Ratings

While TWTR is rated “Buy” in our proprietary POWR Ratings system, PINS is rated “Strong Buy”. Here are how the four components of overall POWR Rating are graded for both these stocks:

TWTR has an “A” for Trade Grade, and Industry Rank, and a “B” for Buy & Hold Grade and Peer Grade. It is currently ranked #20 out of 59 stocks in the Internet industry.

PINS holds an “A” for Trade Grade, Buy & Hold Grade, and Industry Rank and a “B” for Peer Grade.

The Winner

Both TWTR and PINS are good investment bets considering their market dominance. However, PINS clearly appears to be a better buy despite trading at a significantly higher valuation based on its higher earnings and revenue growth potential.

Want More Great Investing Ideas?

9 “MUST OWN” Growth Stocks for 2021

Top 12 Stocks for 2021

Chart of the Day- See Christian Tharp’s Stocks Ready to Breakout

PINS shares were trading at $67.91 per share on Wednesday afternoon, down $2.01 (-2.87%). Year-to-date, PINS has gained 264.32%, versus a 15.41% 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...