Meta Platforms vs. Snap: Which Social Media Stock is the Better Investment?

Social Media Showdown: Meta vs Snap

Introduction

Meta Platforms (META) and Snap (SNAP) have released their latest earnings reports, with their stocks going in opposite directions. Meta’s stock rose 5% after its second-quarter report exceeded analysts’ estimates, while Snap’s stock plunged 16% as its fourth-quarter revenue fell short of expectations. This article will delve into the performance of both companies over the past three years, exploring their user growth, revenue growth, profitability, and valuation to determine which company is better positioned for the future.

User Growth: A Tale of Two Companies

Meta is the world’s largest social media company, with a daily active user (DAU) base of 3.27 billion across its "family" of apps, including Facebook, Instagram, Messenger, and WhatsApp. This represents a 7% year-over-year (YOY) increase. In contrast, Snap’s total number of DAUs grew 9% YOY to 432 million in the second quarter of 2024. While Snap has struggled to keep pace with Meta’s growth, Meta’s user growth has remained remarkably stable over the past year, with a 7% YOY increase.

Revenue Growth: Meta Pulls Ahead

Both companies generate most of their revenue from ads, but Meta has grown its revenue at a much faster rate than Snap over the past year. In the second quarter of 2024, Meta’s revenue rose 22%, while Snap’s revenue increased only 16%. This trend is expected to continue, with Meta anticipating 13% to 20% year-over-year revenue growth in the third quarter, compared to Snap’s forecast of 12% to 16% growth.

Profitability: Meta’s Edge

Meta is consistently profitable on a generally accepted accounting principles (GAAP) basis, with an operating margin of 38% in the second quarter of 2024. In contrast, Snap is still unprofitable on a GAAP basis, with an operating margin of (21%) in the same quarter. Analysts expect Meta’s operating margin to expand to 39% by the end of the year, while Snap’s margin is expected to improve to negative 18%.

Valuations and the Verdict

Meta trades at a forward earnings multiple of 25, making it the second-cheapest stock in the "Magnificent Seven" (along with Alphabet). Snap trades at a forward non-GAAP earnings multiple of 58, which excludes stock-based compensation and other one-time expenses. Based on these valuations and their financial performance, it’s clear that Meta is the better investment option. The company’s stability, user growth, and revenue growth make it a more attractive choice than Snap, which is still struggling to find its footing in the social media landscape.

Conclusion

In conclusion, while Snap may have its niche among younger users, Meta’s scale, stability, and financial performance make it the better investment option. With a stable user base, growing revenue, and a higher operating margin, Meta is poised for continued success in the social media space.