Facebook parent company Meta Platforms' triple-digit stock surge over the past 12 months is a tough act to replicate — just ask Snap and Pinterest.
The three social media companies fell into a deep funk with investors late in 2021 and for much of 2022. But while a red-hot run has Meta stock fully recovered and trading at record highs, momentum for its smaller rivals Pinterest and Snap took a hit from recent earnings reports.
Meta's revenue growth is bouncing back fastest, despite its significantly larger scale. And that highlights a big challenge for smaller players in the recovering digital advertising market.
"The big are definitely getting bigger," as Debra Aho Williamson, an independent tech analyst, told Investor's Business Daily.
Pinterest and Snap Trailing Meta Stock Comeback
Pinterest, with its digital pin-board app, and Snap, with the Snapchat social messaging app, are competing for advertising dollars against Meta's vast social empire of Instagram and Facebook. The fourth-quarter earnings season underlined how that's no easy task.
Meta's fourth-quarter results won rave reviews on Wall Street. The company's plans for its first-ever dividend and a 25% surge in sales helped power Meta stock to a 20% gain in next-day trading on Feb. 2.
The rally capped an epic comeback story for the social media giant. The Facebook and Instagram parent had lost 60% of its value in 2022, amid a slump for the digital ad market and privacy changes from Apple that made it harder to target ads. But just over a year later, Meta stock has climbed back to record highs.
Snap and Pinterest had faced many of those same issues, which caused both stocks to slump in 2022. The shares rallied late in 2023, partly on hopes that Meta's improving sales signaled broader growth for all digital advertising players.
But this earnings season seemed to leave investors let down.
Snap stock plunged more than 30% after its fourth-quarter earnings report. The Santa Monica, Calif.-based company's revenues grew 5% year over year in the December quarter to $1.36 billion, missing estimates of $1.38 billion, according to FactSet.
Two days later, San Francisco-based Pinterest reported December quarter sales growth of 12%, to $981.3 million. That missed Wall Street's expectations for $991 million. Pinterest stock fell a more modest 9.5% in next day trading.
Notably, Meta's sales are growing significantly faster despite its much larger scale. Meta posted $40 billion in fourth quarter revenue, compared to just over $2 billion for Snap and Pinterest combined.
'Winner-Take-Most' Market?
After a boom and bust cycle following the onset of the pandemic, investors are still working to make sense of the digital advertising market.
Because of their much larger scale, Meta, as well Google parent Alphabet and Amazon, provide a better indicator of the overall digital advertising market, Williamson told IBD. But that could also lead to unfair comparisons for Snap and Pinterest.
"Both of them did OK, in terms of revenue growth, over the quarter," Williamson said of Snap and Pinterest. "Versus a company like Meta, which had an absolute blowout quarter."
After Pinterest's earnings, Bernstein analyst Mark Shmulik wrote to clients that it is "fair to ask" whether Snap and Pinterest have structural disadvantages in "what increasingly looks like a winner-take-most digital ad landscape."
Research firm Insider Intelligence projects that Google, Meta and Amazon will capture 57.8% of global digital advertising spending this year, compared to 57.2% last year.
Google offers a huge audience through its search and YouTube products. Amazon — which grew ad sales 27% in the fourth quarter — runs the world's largest e-commerce platform.
Meanwhile, "Meta is approaching 4 billion users for its Family of Apps," Williamson said. "So that would include Facebook, Instagram, WhatsApp and Messenger. No other platform really approaches that size. For an advertiser, that definitely matters."
Further, each tech giant has credited new, AI-powered products for boosting ad sales. Snap and Pinterest are embracing AI as well, but Meta clearly has more resources for developing new products.
Snap Keys In On Direct-Response Ads
Snapchat added 8 million daily active users to reach 414 million total in the December quarter, according to its earnings release. That topped consensus estimates of 6 million, according to FactSet.
The company is looking to diversify its advertising offerings and overall revenue. That includes a focus on direct-response ads that prompt users to take an action, such as purchasing a product.
"We're certainly trying to play catch-up here on the direct-response side, but we are seeing evidence that that's working," Snapchat Chief Executive Evan Spiegel told analysts.
Further, the company's $3.99-per-month Snapchat+ subscription offering has reached 7 million users.
Snap is also looking to cut costs and cut 10% of its workforce the day before its earnings report.
Wall Street is uneasy about the stock. Just 24% out of 42 analysts following Snap rate it as a buy, according to FactSet. On the company's earnings call, LightShed Partners analyst Richard Greenfield asked Spiegel whether Snap's significantly smaller scale, compared to Meta, represented a "fundamental long-term issue."
Spiegel responded that the company does still have 800 million monthly active users.
"We aren't as large as some players," he said, "but I think there's enormous opportunity for us to continue to grow our business."
Pinterest Partners With Amazon, Google
Pinterest, meanwhile, saw its count of monthly active users grow 11% year over year to 498 million. Gen Z users represent more than 40% of Pinterest's user base, Chief Executive Bill Ready said on the company's earnings call.
Last year, Pinterest struck a partnership to run third-party ads from Amazon on its platform. It announced a similar deal with Google during its earnings call earlier this month. Google's Ad Manager will be able to serve advertisements to Pinterest users in international markets. That could help Pinterest drive more revenue from its operations outside the U.S.
"We have approximately 80% of our users outside the U.S., but only 20% of our revenue," Ready said on the call.
Overall, the company is focused on serving more ads that help users shop. Ready told analysts that more than half of Pinterest's 498 million users view it as a place to shop. But the company's ads have not always served that purpose. The partnership with Amazon is meant to address the problem. Ready said the effort is "scaling well."
Analysts are bullish on Pinterest's push to add more shopping. After several analyst upgrades last year, just under 70% of the 38 Wall Street analysts following Pinterest stock rate it a buy.
"While the Q4 revenue results were disappointing, we don't think the story is broken," wrote Evercore ISI analyst Mark Mahaney, who holds an outperform rating on Pinterest stock. Mahaney also expects the company will continue improving its sales and margins, helped by the Amazon deal.
Pinterest's adjusted earnings nearly doubled year over year in the fourth quarter, to 53 cents per share.
Meta Stock Leads Internet-Content Group
Unlike Meta, Pinterest and Snap still have a long ways to go to recover their 2021 highs. Pinterest stock is down 60% from a high just under 90 it reached in April 2021. Snap stock is down 80% from a high point near 83 in September 2021.
But Pinterest has stronger momentum overall, as indicated by its place on IBD's Tech Leaders stock list. Pinterest has an IBD Composite Rating of 96 out of a best-possible 99, according to IBD Stock Checkup, indicating strong performance across IBD's ratings. Meanwhile, Snap is a meager 45 out of 99. Meta stock rates as the top in the MarketSmith Internet-Content group that includes all three stocks. The Facebook parent company has a perfect 99 IBD Composite rating.
Both Snap and Pinterest expect sales to accelerate this quarter. For the period ending in March, Pinterest is projecting sales growth of 15% to 17%, while Snap projected sales growth of 11% to 15%.
It will be crucial for each firm to show they are able to win more ad dollars.
"Ad dollar allocation remains a relative game," Morgan Stanley analyst Brian Nowak wrote to clients following Snap's earnings report. "The way in which Meta and Amazon's ad businesses are inflecting/improving (with improving return on ad spend and expanding impressions) is widening the gap between them and smaller platforms like Snap and Pinterest."
