Higher Purchase: Snap or Fb?

Social media has already changed the world, but its transformative impact is probably just beginning. Emerging technologies like Augmented Reality (AR) and the Metaverse will change the way people communicate and see the world, and these trends are likely to generate huge profits for leading companies.

Snap (NYSE: SNAP) and Meta platforms (NASDAQ: FB)formerly known as Facebook, stand out as two potentially promising stocks for investors looking to capitalize on the growth of social media, augmented reality (AR), virtual reality (VR) and metaverse. With that in mind, investors may be wondering which company is the better buy today. Here’s the bull case for each stock, as well as the verdict on who is the winner.

A person with virtual reality glasses reaches for a cube.

Image source: Getty Images.

Snap: focus on its future potential

Keithen Drury: Unlike meta-platforms, Snap doesn’t have the government watching over it like a hawk. The exemption from this burden allows him to conduct business at his own discretion.

Snap’s Snapchat app allows its users to communicate via pictures or videos and also has an SMS option. It also has a map that lets users see where their friends are and uses augmented reality (AR) to change how the world is viewed through a camera lens. It makes money by viewing ads on its platform via AR ads or promotional videos that are displayed while users are viewing stories.

Snap still has a long way to go to catch up with Meta, but that makes it a better buy. In the third quarter, Snap grew sales 57% to over $ 1 billion. Daily active users (DAUs) also grew by 23%. Revenue is growing faster than customers, suggesting Snap is better monetizing its user base. It increased its average revenue per user (ARPU) significantly over the quarter.

Global North America Europe rest of the world
28% 49% 34% 3%

Source: Snap. Average Revenue Per User (ARPU) growth year over year.

Despite this strong growth, North American and European users achieve ARPUs of $ 8.20 and $ 1.92, respectively. Meta brings in an ARPU of $ 52.34 for the US and Canada and $ 16.50 for Europe. Meta is ahead, but if Snap can keep growing its sales it will be a solid investment.

An important metric that Snap doesn’t need to match just yet is profitability. It does not consistently produce free cash flow and has a consistently negative net loss margin. It also dilutes its number of shares by around 4% annually. Snap is also rated highly; it is about 23 times sales. Stocks have recently plummeted, down more than 30% from their September highs. Investors who want to open or expand a position should take advantage of the reduced market price.

Much of Snap’s investment thesis depends on its potential. If it can continue to increase its ARPU for each region, it should generate enough revenue to cover its expenses. Fast investors need to be aware of the risks associated with doing business. For one thing, social media platforms can quickly go out of style. However, since 90% of 13- to 24-year-olds use the platform in their established markets, Snapchat is in the foreground for an important section of the population.

Meta-Platforms: These foundations are too strong to ignore

Keith Noonan: Meta Platforms is a proven winner with massive resources. In addition to their sizeable cash stacks, the company also has a clear leadership position on social media that should help them capitalize on new growth opportunities. About 45% of the world’s population interacts with its services, which include Facebook, Instagram and WhatsApp.

Snap is a promising company in many ways, and the fact that it is still relatively small compared to meta-platforms suggests it may be easier to achieve relative growth. However, I think Meta’s resource advantage gives it better risk-reward dynamics.

Meta Platforms has established itself as a top player in the digital advertising market and has proven that it can generate huge profits and still make large investments to drive future growth. Despite its already massive size, Facebook managed to grow third-quarter revenue 35% year over year, and net income was 17% higher than the year-ago period.

The Facebook platform alone closed in September with around 2.9 billion monthly active users. Across the company’s entire product portfolio, it ended the period with nearly 3.6 billion monthly active users.

Meta Platforms has also made some major acquisitions, bringing talented video game and app development studios under its corporate umbrella, and positioning itself as a long-term winner in interactive content. The company’s Oculus platform is already at the forefront of VR, and the social media leader’s incredible reach and range of resources should help it become a leader in AR and Metaverse too.

Admittedly, Meta Platforms faces a number of branding and regulatory challenges. The huge size of the company, dominance of the social media space, and content policies have put it in a prime position for review at a time when social networking platform regulation is a hot topic. The renaming from “Facebook” to “Meta-Platforms” to some extent reflects this business-related dimension of risk, but I think there is a good chance the tech giant can overcome these challenges.

Which Stock is Right For You?

Snap and meta platforms each have fascinating growth potential and seem poised to shape potentially revolutionary technology and communication trends. This is one case where investors who see the AR, VR, and the Metaverse showing promise may both want to buy stocks.

Otherwise, it is probably best to decide between the two based on your personal risk tolerance and growth goals. Snap stocks can potentially see more explosive growth, but Meta Platforms looks like they could still have big advantages despite potential regulatory and public image challenges.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer.

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