Overlook Fb, Purchase These 2 Social Media Shares As an alternative

Facebook (NASDAQ: FB) is seen by many as a top investment in the booming social media market. The platform of the same name serves 2.8 billion active users (MAUs) per month, making it the world’s largest social network for miles. 3.3 billion people access their app family every month – including Messenger, Instagram and WhatsApp.

Facebook revenue and earnings rose 22% and 57%, respectively, in fiscal 2020 as it weathered a pandemic-induced decline in ad spend in the first half of the year. Analysts expect sales and earnings to increase by 25% and 13% respectively this year – and the stock still looks surprisingly cheap with 20 times the profit in the future.

Despite these strengths, I sold my Facebook shares last month for three simple reasons. First, the deadly uprising at the Capitol suggests it is losing control of its own platform. Second, Facebook’s growth is likely to slow down Apple Starting this year, iOS users can opt out of targeted ads. After all, the regulatory headwinds – which include requiring the company to get out of its other apps and be held accountable for the actions of its users – are too violent to ignore.

Facebook boss Mark Zuckerberg.

Image source: Facebook.

Instead of staying on Facebook, I kept my long-term position in Grab it (NYSE: SNAP) and started a new position in Pinterest (NYSE: PINS). So I believe these two social media stocks will continue to outperform Facebook for the next several years.

Avoid Facebook’s Biggest Problems

Snap and Pinterest have both created high-growth niches in the social media market. Snap’s Snapchat has hit the Gen Z and Millennial markets with its short-lived messages, AR lenses, and Discover videos. And Pinterest attracted older users with its virtual bulletin boards that encouraged them to share their interests, ideas and hobbies with other users.

Snap and Pinterest have both noticed the benefits of first movers in their markets. Facebook cloned many of the features of Snapchat and incorporated them into Messenger and Instagram, but Snapchat has continued to grow. Facebook started a Pinterest clone called Hobbi last February, but it ended after just a few months.

Snap and Pinterest are also well isolated from the misinformation controversy that plagued Facebook and Facebook Twitter throughout the electoral cycle and pandemic, as none of the platforms are generally used to exchange news or political opinions.

Snap and Pinterest also serve a much smaller audience than Facebook, which protects them from antitrust investigations. In fact, both companies would likely benefit from raids on the Facebook app family.

Snap and Pinterest are growing much faster

Snap’s Daily Active Users (DAUs) grew 22% year-over-year to 265 million in the most recent quarter, an acceleration from the previous quarter.

A young woman takes a selfie.

Image source: Getty Images.

Revenue rose 62% year over year to $ 911 million, the fastest quarterly growth in three years. Average revenue per user (ARPU) rose 33% to $ 3.44, the fastest growth in five quarters.

Snap’s adjusted EBITDA also quadrupled to $ 166 million as non-GAAP EPS tripled. Snap attributed these incredible growth rates to expanding its ecosystem with new Discover videos, AR lenses, and in-app games, as well as rising pricing power in online ads.

Pinterest’s MAUs rose 37% year over year to 459 million in the last quarter. ARPU increased 12% to $ 4.26 and total revenue increased 48% to $ 1.69 billion. Adjusted EBITDA nearly quadrupled to $ 299.2 million and non-GAAP income more than tripled.

Pinterest attributed its growth to its overseas expansion, as well as the robust demand for the sponsored and “shoppable” Pins that many retailers use to upload their entire catalogs. Pinterest’s design, which allows users to share home, fashion, travel, and other ideas on its platform, arguably makes it a much more organic “social shopping” experience than Instagram.

Snap and Pinterest are not yet profitable by GAAP, largely due to high stock-based compensation expenses. In the near future, the market is likely to focus on revenue and user growth.

Rosy expectations and reasonable reviews

We should always be skeptical of analysts’ estimates, but Snap and Pinterest are expected to see much faster revenue growth than Facebook over the next two years:

Estimated sales growth (YOY)

FY 2021

FY 2022

Grab it









Data source: Yahoo Finance, February 24. YOY = year after year.

Based on these forecasts, Snap and Pinterest are trading at 28 and 22 times this year’s sales, respectively. Those ratings are high, especially if Facebook is only seven times this year’s sales – but they remain cheaper than many other high-growth technology stocks.

The estimates made by these analysts may even be too low. Snap recently stated that on its first investor day, it could maintain sales growth of over 50% for “several years”. If Snap lives up to that promise, value for money could decline quickly as profitability improves. I wouldn’t be surprised if Pinterest makes a similar long-term prediction, forcing analysts to rethink their expectations.

The final result

Facebook isn’t doomed, but I no longer want to own its shares for ethical and fundamental reasons. If you feel the same way, then you should replace Facebook with Snap and Pinterest as your main social media investment.

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

Comments are closed.