Pinterest, Inc. (PINS) and Snap Inc. (SNAP) are two of the world’s fast-growing social media and photo-sharing platforms. As people have taken to social media as a major form of entertainment while being confined in their houses, both PINS and SNAP have been witnessing a significant rise in their daily active users.
Both stocks have generated significant returns over the past year. While PINS returned 127.4% over this period, SNAP gained 165.1%. In terms of year-to-date performance, PINS is a clear winner with 216.3% returns versus SNAP’s 141.2%. But which of these stocks is a better pick now? Let’s find out.
Ahead of the holiday season, PINS launched ads alongside visual search results on September 29th, as well as more places to shop to help users amid the “new normal.” The company also expanded shopping tools for Pinners in the United Kingdom.
Last month, PINS integrated with Microsoft Edge so that users can find relevant pins more easily. The company also launched the Pinterest widget for iOS 14 so that users can see daily inspiration right from their iPhone home screen. The company also made it easier for the merchants by launching new tools to help reach the customers more easily.
In June, SNAP announced that Disney, ESPN, NBCUniversal, ViacomCBS, the NBA, and NFL expanded content partnerships to SNAP’s Discover platform. The company also introduced a new product called Happening Now, which has been watched by over 125 million people. Also, more than 170 million people use SNAP’s Augmented Reality (AR) tools daily.
SNAP announced new developer products and partnerships across Snap Kit, Snap Games, and Bitmoji ecosystems.
Recent Financial Results
PINS’ revenue surged 58% year-over-year to $443 million in the third quarter ended September 2020, primarily driven by growing advertiser demand.
PINS’ Global Monthly Active Users (MAUs) increased 37% year-over-year to 442 million. The Average Revenue per User (ARPU) increased by 15% year-over-year to $1.03. While ARPU increased 31% year-over-year in the United States, it increased 66% internationally.
SNAP’s revenue for the third quarter ended September 2020 increased 52% year-over-year to $679 million. The daily active users (DAUs) increased by 18% year-over-year to 249 million. While the total daily time spent watching shows increased by more than 50% year-over-year, the average revenue per user also increased by 28% year-over-year to $2.73. The company’s adjusted gross margin improved to 58% year-over-year.
Past and Expected Financial Performance
PINS’ revenue increased by 36.5% over the past year. The market expects the company’s revenue to increase by 55.1% in the fourth quarter ending December 2020, 39.3% in the current year, and 38.5% next year. PINS’ EPS is expected to grow 58.3% in the fourth quarter, 30% for the quarter ending March 2021, and 350% next year. Moreover, its EPS is expected to grow at a rate of 152.3% per annum over the next five years.
On the other hand, SNAP’s revenue increased by 39.6% over the past year. The market expects SNAP’s revenue to increase by 50.6% in the fourth quarter ending December 2020, 41.9% in the current year, and 39.7% next year. The company’s EPS is expected to grow 100% in the fourth quarter, 62.5% for the quarter ending March 2021, and 322.2% next year. Moreover, SNAP’s EPS is expected to grow at a rate of 67.4% per annum over the next five years.
Thus, SNAP has an edge over PINS here.
SNAP’s trailing-12-month revenue is 1.55 times what PINS generates. But PINS is more profitable with a gross margin of 70% versus SNAP’s 51.3%.
Moreover, PINS’ leverage free cash flow margin of 76.5% compares favorably with SNAP’s 12.5%.
In terms of trailing 12-month price/sales, PINS is currently trading at 26.46x, slightly more expensive than SNAP which is currently trading at 26.25x. However, SNAP is more expensive in terms of EV/Sales (26.87x versus 25.19x).
Both PINS and SNAP are rated “Buy” in our proprietary POWR Ratings system. Here’s how the four components of overall POWR Rating are graded for PINS and SNAP:
Both PINS and SNAP have an “A” for Trade Grade, Peer Grade, and Industry Rank and a “B” for Buy & Hold Grade.
Both PINS and SNAP are good investment bets considering their market dominance and continued expansion. However, SNAP appears to be a better buy despite trading at a marginally higher valuation based on its higher earnings growth potential.
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SNAP shares were trading at $40.79 per share on Monday afternoon, up $1.40 (+3.55%). Year-to-date, SNAP has gained 149.79%, versus a 4.06% 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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