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Pinterest vs. Facebook: Which Social Media Stock is a Better Buy Now?

Social media platforms have become an integral part of many businesses, as these are now pretty effective mediums in reaching a greater audience with products and solutions. Given that Pinterest (PINS) and Facebook (FB) are two of the established companies in the social media space, they are expected to see increasing user activities and revenues in the upcoming months. But let’s find out which of these two stocks is a better buy now.

Pinterest, Inc. (PINS) and Facebook, Inc. (FB) are two of the top players in the social media space. PINS is known for its visual discovery platform that acts like a virtual Pinboard where users pin to share their various ideas. FB’s products include Facebook, Instagram, Messenger, WhatsApp, and Oculus.

The social media platforms witnessed a massive surge in the number of users and the time spent by them on their platforms amid the pandemic. Even in the post-pandemic scenario, people are expected to spend more time on social media platforms given the advanced ad-target strategy adopted by the platforms which is much improved now thanks to advanced technologies. As a result, both FB and PINS are expected to gain significantly in the upcoming months.

While PINS has returned 410.9% over the past year, FB has gained 79.6%. Also, in terms of past-three months’ performance, PINS is the winner with a 19.6% return versus FB’s 17%. But which of these two stocks is a better pick now? Let's find out.

Latest Movements

On April 7, 2021, PINS announced the upcoming launch of the Creator Code, its content policy. The company also announced the expansion of its skin tone range feature, which now includes 13 additional countries including France, Italy, Spain, Germany, Switzerland, Austria, Netherlands, India, Indonesia, Mexico, Argentina, Brazil and Colombia. This feature update enables the users to see content similar to the skin tone they’ve selected.

The company also undertook several measures in March to combat health misinformation regarding COVID-19. It partnered with authoritative leaders such as health institutions, doctors, and community organizations to highlight expert content around COVID-19 and the vaccines on its platform. PINS also introduced its newest widget option ‘Interests’ for iOS users in February 2021 where they can choose their top interests and have fresh content served to them daily on their home screen.

FB added Zoom and GoToMeeting to its Portal TV on April 7, 2021 to facilitate easier and convenient connectivity among its users. The company introduced a new tool on March 31, 2021 to give users more control over what they share in the news feed by managing who can comment on the public posts. It added a menu of options ranging from anyone who can see the post to only the people and Pages the user tags.

It completed the first phase of its latest fiber network build across Indiana — a unique network route of almost 80 miles that runs along Interstate 70 at the Indiana/Ohio border to downtown Indianapolis providing fast, efficient, and reliable access to its users. On March 24, 2021 FB announced that it took several actions against a group of hackers in China, Earth Empusa or Evil Eye, to disrupt their ability to abuse FB’s platform, distribute malware and hack people’s accounts across the internet.

Recent Financial Results

PINS’ revenue surged 76.4% year-over-year to $705.62 million for the fiscal 2020 fourth quarter that ended December 31, 2020. Its Global Monthly Active Users (MAUs) increased 37% year-over-year to 459 million. The company’s net income came in at $207.84 million for the quarter compared to $35.72 million in the fourth quarter of 2019. Moreover, its non-GAAP EPS increased 258.3% year-over-year to $0.43.

FB’s revenue for the fiscal 2020 fourth quarter that ended December 31, 2020 increased 33.2% year-over-year to $28.07 billion. Its MAUs increased 12% year-over-year to 2.80 billion and daily active users (DAUs) increased 11% year-over-year to 1.84 billion on average. Its net income increased 52.7% year-over-year to $11.22 billion. Also, the company’s EPS came in at $3.88, up 51.6% year-over-year.

Past and Expected Financial Performance

PINS’ revenue increased at a CAGR of nearly 53% over the past three years. Analysts expect the company’s revenue to increase 73.8% for the quarter that ended March 31, 2021, 48.7% in fiscal 2021, and 35.9% in fiscal 2022. Its EPS is expected to grow 100% in fiscal 2021 and 47.6% in fiscal 2022. Moreover, PINS’ EPS is expected to grow at a rate of 240.1% per annum over the next five years.

On the other hand, FB’s revenue increased at a CAGR of 28.4% over the past three years. The market expects the company’s revenue to increase 32.6% for the quarter that ended March 31, 2021, 25% in fiscal 2021, and 19.4% in fiscal 2022. FB’s EPS is expected to grow 12.1% in fiscal 2021 and 19.6% in fiscal 2022. Also, its EPS is expected to grow at a rate of 21.5% per annum over the next five years.

Profitability

FB’s trailing-12-month revenue of $85.97 billion is much higher than PINS’ $1.69 billion. FB is also more profitable with a gross profit margin of 80.6% versus PINS’ 73.5%.

Moreover, FB’s ROE and ROA of 25.4% and 14% compare favorably with PINS’ negative values.

Valuation

In terms of forward P/E, PINS is currently trading at 104.46x, 271.9% higher than FB which is currently trading at 28.09x. Moreover, PINS is more expensive both in terms of trailing-12-month P/S (30.29x versus FB’s 10.38x) and trailing-12-month EV/Sales (30.99x versus FB’s 9.78x).

In terms of trailing-12-month price/cash flow as well, PINS’ 1874.69x is much higher than FB’s 23.01x.

POWR Ratings

FB has an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. However, PINS has an overall grade of C, which represents Neutral. The POWR Ratings are calculated by taking into account 118 different factors with the weighting of each optimized to improve overall performance.

FB has an A grade for Quality, which is consistent with its significantly higher-than-industry profitability ratios. However, PINS has a B grade for Quality as its trailing-12-month gross profit margin is much higher than the industry average, but its ROE and ROA are negative.

FB’s B grade for Sentiment is reflective of its favorable analyst sentiment as they expect the stock to surge higher in the near term. However, analysts expect PINS’ stock to decline in the near term. As a result, it has a C grade for Sentiment.

Moreover, out of 71 stocks in the Internet industry, FB is ranked #6 and PINS is ranked #26.

In addition to the grades I’ve just highlighted, both FB and PINS are also graded for Growth, Value, Momentum, and Stability. Click here to see the additional ratings for FB. Also, get all PINS ratings here.

The Winner

While both PINS and FB are established players in the social media space, FB boasts a wide range of offerings including Oculus, which is focused on virtual reality (VR) technology. FB also seems to be more profitable compared to PINS. So, FB is a better bet now.

Click Here to learn about six other top-rated stocks in the Internet industry.

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FB shares were trading at $312.15 per share on Friday afternoon, down $0.87 (-0.28%). Year-to-date, FB has gained 14.27%, versus a 9.97% 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.

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