With more than 2.7 billion monthly active users (MAUs) as of June 30, 2020, Facebook, Inc. (FB) is the biggest social media company. However, as the company is maturing, revenue growth is expected to decline within the absence of new revenue sources. The company’s CFO, David Wehner, stated that he expects growth to decelerate in the coming quarters due to the maturity of the business. As a result, it could be hard for the stock to replicate its remarkable gains.
FB’s growth could be stunted due to the saturation of social media. To sustain its growth, the social media giant will have to start considering other revenue streams. Among the new areas of focus for FB is Portal, its smart video hardware, used by its Messenger and WhatsApp for video calls. The company, however, has to face stiff rivalry from Amazon’s Echo Show, a similar product. The second one is Oculus, FB’s virtual reality hardware. There is a high demand for VR devices at reasonable prices, but FB has to face competitive pressures in expanding its user base.
Meanwhile, FB is faced with regulatory challenges. According to The Wall Street Journal, the Federal Trade Commission is considering filing a suit against FB by the end of the year. Moreover, if the Democrats win the Presidential elections, things could get complicated for the company. The new government may even consider splitting up the company and order it to divest Instagram and WhatsApp based on an antitrust probe.
Over the past six months, the stock has rallied 53.8% and closed at $284.8 on Friday. Despite the stellar market performance, there is an air of uncertainty around FB. So, it’s time to look at other relatively smaller social media stocks that have tremendous growth prospects and unique offerings. Snap, Inc. (SNAP), Twitter, Inc. (TWTR), and Pinterest (PINS) are three such stocks that could be better additions to your portfolio now.
Snap, Inc. (SNAP)
SNAP is a social media company that connects people through visual communication, storytelling, and other modes of self-expression. It is an app that allows users to enhance and customize images and videos according to their preferences. Snap also has a broad line-up of video content and games that are immensely popular among millennials. The company has three major brands under its umbrella — unique-Snapchat, Spectacles, and Bitmoji. Out of these three, Snapchat is widely used and it connects millions of people.
SNAP is now venturing into a new territory which is original content and storytelling. Earlier this month, the company launched Snap Originals, a platform that focuses on short-form content. Snap Originals will have a line-up of short series with episodes spanning an average length of a maximum of five minutes. Snap Originals will feature some of the famous entertainers like Trippie Redd, Loren Gray, Haden Smith, MK Asante, and Colin Kaepernick among others.
During the third quarter ended September 2020, SNAP delivered revenue of $678.67 million, surpassing analyst expectations by 22.1%, largely driven by advertisements. Compared to the year-ago period, its revenue surged 52.1%. Due to increased usage amid the pandemic, SNAP posted an 18% year-over-year growth in its daily active users to 249 million. It also exceeded the consensus estimate of 244 million DAU. SNAP is optimistic about its DAU growth and expects it to climb to 257 million this quarter. The company’s adjusted EPS came in at $0.01, as against consensus estimates of $0.05 loss.
For the fourth quarter ending December 2020, analysts expect EPS of $0.02. Meanwhile, revenue is expected to be $721.48 million up 28.6% year-over-year.
SNAP rallied 164.4% year-to-date to close Friday’s session at $43.17. Over the past six months, the stock has soared nearly 170%. Better-than-expected results and a suggested rebound in advertiser demand drove the stock higher.
How does SNAP stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating
The stock is also ranked #2 out of 58 stocks in the Internet industry.
Twitter, Inc. (TWTR)
TWTR is a microblogging and social networking platform wherein users can interact with each other and express themselves through ‘tweets.’ TWTR allows users to share their opinion on various subjects including global news, politics, technology, finance, entertainment, and many more. The platform has nearly 170 million daily active users.
The company strongly believes in disruptive technology and its CEO, Jack Dorsey, has indicated that Bitcoin and Blockchain will steer the course for TWTR through a decentralized internet standard. Dorsey is visualizing an open social media platform and wants to transform the company’s image as a “content hosting” platform. The company has already entrusted the job to a group, BlueSky, which is building a protocol for usage.
TWTR’s advertisement revenue for the second quarter dropped 22% year-over-year to $562 million. It also missed the consensus estimate. The ad revenue was gradually recovering during the quarter. However, a pullback by brands between May-mid June due to civil unrest in the US hurt the company’s top line. Meanwhile, TWTR reported average monetizable daily active users (mDAU) of 186 million, up 34% year-over-year. This is the highest growth rate since the metric was reported. The consensus estimate for the September quarter indicates a 70.6% year-over decline in its EPS to $0.05, while the revenue for the quarter is expected to be $766.7 million, down 12.3% year-over-year.
TWTR soared 57.4% to $50.44 on a year-to-date basis to end Friday’s session at $50.44. The stock, which is trading close to its 52-week high, surged 81% over the past six months. There have been a lot of major discussion points globally in the past few months which kept users glued to TWTR. Constant updates on the pandemic, speculations over the vaccine, the economy, and the US presidential election have been some of the trending topics. Moreover, more people spending time on social media while being homebound added to the momentum. The company has also been experimenting with virtual events to initiate more conversations.
TWTR’s POWR Ratings reflect its promising outlook. It has an overall rating of “Strong Buy” with an “A” in Trade Grade, Peer Grade, and Buy & Hold Grade, and a “B” in Industry Rank. Among the 58 stocks in the Internet industry, it’s ranked #3.
Pinterest, Inc. (PINS)
PINS is an image sharing and social media platform meant for saving and discovering information through visuals, known as ‘Pinboards.’ The platform functions as a visual search engine in many ways. The users save their ideas as ‘pins’ and share it for fellow users to view and to get inspired. As of 2019, PINS had more than 200 billion pins saved. Apart from being a unique social media platform, PINS is widely used by marketers to get higher brand engagements.
The company has been diversifying its leadership group amid claims of gender and racial bias by its employees. PINS added Salaam Coleman Smith, a former Disney TV executive, to its board.
For the second quarter ended June 2020, PINS posted revenue of $272.5 million, up 4.3% from the same period last year. It also beat the consensus estimate of $250.7 million. The company reported an adjusted loss per share of $0.07, beating the consensus estimate of a loss of $0.13 per share. PINS’ global monthly active users jumped 39% year-over-year to 416 million. The company’s global MAUs for the quarter surpassed the analyst estimate by 10.8%. The company’s CEO, Ben Silbermann, stated, “In these tough times, we’re seeing more and more people rely on Pinterest to cook at home, plan kids’ activities and set up a home office.”
Analysts expect PINS revenue for the third quarter to surge 35% to $377.7 million. The company’s EPS for the quarter is likely to double to $0.02.
On a year-to-date basis, PINS rallied 184.3% to close Friday’s session at $53. Over the past six months, the stock gained 182%.
PINS POWR Ratings are bullish as well as it’s rated a “Strong Buy”. It has an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade with a “B” for Industry Rank.
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FB shares were trading at $276.16 per share on Monday afternoon, down $8.63 (-3.03%). Year-to-date, FB has gained 34.55%, versus a 6.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Namrata Sen Chanda
Namrata is an accomplished financial journalist, with nearly a decade of experience. She specializes in interpreting news releases and framing investment strategies, and has worked with some of the leading companies in real estate, banking, insurance, mutual funds, financial research, fintech, and investment education. More…