Meta’s Move to Increase Competition for Snap and Pinterest
Snap Inc. and Pinterest Inc., two social media firms, face a more complex investment scenario with the introduction of Meta Platforms Inc.’s Twitter competitor, as their stock price recoveries are slower compared to their bigger competitor.
Facebook parent Meta is the industry’s dominant player by far, and that extends to its shares this year as well. The stock has been performing by leaps and bounds, and Threads’ rapid user growth is the latest demonstration of the reach and scale that has made it a favorite among investors and analysts.
“It’s hard to make a case for owning Snap or Pinterest over Meta because there’s no denying that Meta is the strongest in the industry and likely to get stronger,” said Jay Woods, chief global strategist at Freedom Capital Markets.
Although Threads is more of a direct competitor to Twitter — which has struggled since Elon Musk took it private — than to Snap or Pinterest, the service amassed 100 million users within a week of its launch, underscoring how small platforms can struggle in the competitive online ad market. Cowen upgraded the Meta on Thursday, citing the opportunity to monetize Threads.
Amid a surge in megacap tech stocks, Meta is up 161% this year, second only to Nvidia Corp. among Nasdaq 100 components. Meta has since trimmed costs, exacerbated by its metaverse initiative, and has a revenue growth lever that Snapchat parent Snap and digital pinboard platform Pinterest lack.
Meta rose 1.1% on Thursday, while Snap rose 2% and Pinterest was little changed. The Nasdaq 100 rose 0.8 percent.
For Snap and Pinterest to be more attractive to investors, “they would have to compete with a better product idea than Meta,” Woods said. “I’m not sure what that would be, especially since Metal has this huge user base and includes the features of its competitors.”
Meta’s net earnings per share are expected to grow 40% faster than Snap and Pinterest this year. The extent to which Threads will drive growth remains to be seen, but Evercore ISI estimates it could generate about $8 billion in annual revenue over the next two years — close to what analysts expect Snap to generate during that time and above Pinterest’s consensus.
Even with years of gains, the Meta trades at about 21 times forward earnings, which is below both the long-term average and the Nasdaq 100. The valuation represents a significant discount to the multiples of both Snap and Pinterest.
Meta promises that the threads will be different. Show skepticism
“Meta is pretty well set up given its valuation and growth prospects, and while it’s still early days for Threads, the signups say something about its scale and reach, which really sets it apart,” said research analyst Hanna Howard. in Gabelli Funds. “Something would really have to change for us to consider owning Snap or Pinterest instead.”
Meta’s user base is several times larger than Snap or Pinterest, as is its average revenue per user. According to data from Bloomberg Intelligence, it had a market share of nearly 33% of global Internet advertising revenue in 2022; Snap had just 1.3 percent, while Pinterest had 0.8 percent. Google’s parent company, Alphabet Inc., has just over half of the market.
Still, Freedom Capital’s Woods suggested that Snap and Pinterest’s recent price action could represent something silver lining.
“The fact that they are not making new lows can be a sign that the worst of the journey is over and that things can start to turn around and get better. Even if they look a little interesting, Meta is still a long-term play.”
