A social networking service is a web-based service developed for people, allowing them to share social and special-interest networking. According to Research and Markets, the global social networking platforms market is estimated to reach $939.68 billion by 2026, growing at a CAGR of 25.38% during the forecast period.
The industry's growth should support such tailwinds as the increasing penetration of electronic devices and rising data consumption. More precisely, the number of social network users is projected to rise to 4.41 billion by 2025, up from 3.6 billion in 2020. Consequently, companies from the given industry should benefit over the long term.
Keeping that in mind, I will analyze and compare two social media stocks in this article, Pinterest (PINS) and Twitter (TWTR), to determine which one is a better buy for 2022.
Founded in 2008, Pinterest operates a photo-sharing website that allows users to post theme-based images, thus inspiring their lives. Based in San Francisco, California, Twitter is a technology company that offers communication services by allowing users to consume, create, distribute and discover content on its Twitter platform.
Over the past six months, shares of PINS dropped around 55%, and TWTR stock lost 46.5% of its value over the same period.
Recent Developments
On January 20th, Twitter began the integration of nonfungible tokens (NFTs) into its premium service, known as Twitter Blue. The company said that Twitter Blue users could connect their cryptocurrency wallets to the platform, enabling them to set profile pictures based on their NFTs. It is important to note that supported wallets include Coinbase, Metamask, Trust, Rainbow, Argent, and Ledger Live. The company said, “Nowadays, people are using NFTs as a form of identity and self-expression, and as a gateway into the thriving community and increasingly active conversation on Twitter.”
Recent Quarterly Performance & Analysts Estimates
On February 3rd, Pinterest issued an earnings report for the fourth quarter of 2021. In Q4, Pinterest's revenue was up 19.9% on a year-over-year basis to $846.66 million. This revenue growth was achieved due to the 23% increase in Average Revenue per User (ARPU). Moreover, the company beat Wall Street consensus estimates by $19.43 million. Also, the company reported Non-GAAP EPS of $0.49, beating Wall Street expectations by $0.03.
It is also important to note that the company's fourth-quarter Adjusted EBITDA was $350.86 million, up 17 % year-over-year. However, its Adjusted EBITDA margin decreased by 100 bps YoY to 41% in the fourth quarter of 2021. In addition, concerns about Monthly Active Users (MAUs) growth remains as well. In Q4, PINS’ global MAUs were reported at 431 million, representing a 6% year-over-year decrease.
Wall Street analysts expect PINS' earnings to decline 70.91% in the first fiscal quarter of 2022 to $0.03 per share. However, its revenue for the current quarter is expected to increase 18.25% year-over-year to $573.79 million.
Twitter last issued its earnings results on Tuesday, October 26th. For its fiscal third quarter ended September 30th, 2021, TWTR's total revenue increased 36.8% year-over-year to $1.28 billion, standing in line with Wall Street consensus. The company's revenue growth was mainly related to a 41% YoY increase in advertising revenue to $1.14 billion, driven by revenue product improvements, strong sales execution, and a vast increase in advertiser demand. Besides, Twitter disclosed a Non-GAAP EPS of ($0.67), missing Wall Street estimates by $0.85.
In Q3, Twitter’s average monetizable daily active usage (mDAU) stood at 211 million compared to 187 million in 3Q2020 and 206 million as of 2Q2021. The company’s ad engagement grew 6% year-over-year, while cost per engagement increased 33% year-over-year.
For the fourth quarter, analysts expect TWTR's EPS to come in at $0.34, down 10.12% year-over-year. Additionally, Wall Street expects the company's revenue to increase by 22.07% YoY to $1.57 billion in Q4.
Comparative Valuation
In terms of Forward P/E, TWTR is currently trading at 160.58x, which is 485.4% higher than PINS, whose multiple is presently 27.43x. When it comes to the FWD EV/Sales multiple, TWTR's multiple of 5.42x is 8.4% higher than PINS' 5.00x.
Furthermore, PINS should deliver higher forward revenue and EBITDA growth rates of 33.98% and 52.85%, respectively. These growth figures exceed the TWTR numbers of 20.80% and 7.24%, respectively.
Conclusion
Putting it all together, I think PINS currently presents a more attractive buying opportunity. Although Twitter delivered a higher revenue growth rate, its top and bottom line failed to beat the Wall Street consensus. At the same time, Pinterest delivered EPS and revenue that exceeded analysts’ expectations. In addition, the company is projected to demonstrate higher forward revenue and EBITDA growth rates. Finally, PINS looks cheaper from a valuation standpoint.
PINS shares fell $0.40 (-1.51%) in premarket trading Tuesday. Year-to-date, PINS has declined -28.67%, versus a -5.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Oleksandr Pylypenko
Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.
Better Buy for 2022: Pinterest vs. Twitter StockNews.com
