Snap (NYSE: SNAP) and Pinterest (NYSE: PINS) are two fast growing social media companies that have flourished in the shadow of Facebook. Let’s take a look at why Snap has outperformed Pinterest so far and whether or not it will remain the strongest social media stock.
The impact of the pandemic on Snap and Pinterest:
The number of daily active users (DAU) on Snapchat increased by 22% to 265 million in 2020 and then increased by 23% to 293 million in the second quarter of 2021. Strong growth in the first two quarters impressed investors and Snap updated the title.
Snapchat’s growth has been more fluid as its DAUs have primarily used the platform to chat with friends, explore videos, use augmented reality (AR) lenses, and play embedded games.
The growth of Pinterest’s MAU has stalled as many of its new users have joined the platform to explore home activities such as recipes, crafts, home improvement and family activities during the period of pandemic. But when people started to leave their homes, they were spending less time on Pinterest.
Snap sales grew 46% to $ 2.51 billion in 2020. Analysts expect Snap’s annual sales to grow by 68% to $ 4.2 billion and the company expects sales to grow by about 50% over the next few years. Snap believes it can achieve this ambitious goal by expanding its own service advertising platform, selling a higher mix of more expensive video and AR ads and creating a “community shopping” ecosystem with visual search.
Pinterest revenue climbed 48% to $ 1.69 billion in 2020, then grew 102% year on year to $ 1.1 billion in the first half of 2021, the growth in average revenue per user (ARPU) and the rebound in the advertising market offsetting the sequential loss of MAU.
Pinterest anticipates more ‘headwinds to engagement’ as COVID-19 restrictions around the world loosen, but analysts still expect annual revenue to increase 55% to reach $ 2.62 billion. Unlike Snap, Pinterest didn’t provide any longer-term direction for the next few years.
Profitability and valuations:
Snap remains unprofitable on a GAAP basis, but its net loss declined in the first half of 2021 year-on-year to € 631.9 million in the first half of 2020. Analysts expect the company to generate its first non-GAAP earnings this year.
Pinterest outperformed GAAP with a net loss of $ 47.7 million in the first half of 2021 compared to a net loss of $ 241.9 million in the first half of 2020. The adjusted EBITDA was $ 262 million. Significant improvement compared to EBITDA’s loss of $ 87 million a year ago.
Pinterest is trading for 38 times future profits and 13 times this year’s sales. It’s fundamentally cheaper than Snap, but its lower ratings reflect dangerous growth after the pandemic.
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