The world of social media seems to be dominated by the likes of Facebook, which boasts over 2 billion users across its family of apps, and Twitter, which is often at the center of public discussion thanks to it being one of President Trump's favorite mode of communication.
But there are many more social media companies out there for users who are interested and two, in particular, that tech investors should consider adding to their portfolio: Pinterest (PINS 5.88%) and Snap (SNAP +1.08%). Here's why:
1. Pinterest: not just a social media clone
Pinterest went public in mid-April of 2019. Although the company's stock initially performed well and jumped more than 50% from its $18 IPO price in just a few months, that early success was short-lived. Shares have declined steadily since August, and Pinterest experienced a sell-off after it released its third-quarter results. Despite these struggles, striking Pinterest off your buy list would be ill-advised for three big reasons.
Image source: Getty Images.
First, despite being categorized as a social media platform, Pinterest isn't merely a clone of Facebook, Twitter, or some other social media giant. The company's platform also functions as a search engine for shopping. With many of its users constantly looking for the next fashion trend or some other product or service, the platform attracts advertisers looking to reach a targeted audience. As the number of users on Pinterest grows, the company can attract even more advertising business, as well as increase its ability to monetize its platform. During the third quarter, monthly active users (MAUs) grew by 28% year over year, while average revenue per user (ARPU) increased by 14% compared with the year-ago period.
Second, Pinterest sees a huge opportunity to improve its penetration in several international markets. As the company said in its third-quarter letter to shareholders: "Given the significant opportunity to grow our business in English-speaking countries and Western Europe, we will focus on scaling our presence in these markets before further expanding to new countries or regions."
Third, Pinterest is looking to fine-tune the shopping experience on its platform, most notably by increasing the amount of what it calls "high-quality buyable inventory," and improving users' ability to match images with shopping items. Doing so could lead to increased interaction between buyers and merchants, and eventually to more merchants and advertisers making their way onto the platform, which would be good news for the company's bottom line.
For all those reasons, and given that Pinterest's stock price is currently hovering around its IPO price, the company is worth a closer look.
2. Snap: the comeback continues
Snap (which operates the app Snapchat) debuted as a stock in March 2017. The company's first 18 months as a publicly traded business was a bit of a disaster, with its stock plunging by about 60% from its IPO price. But Snap has been staging a comeback since the beginning of 2019, and shares soared by more than 170% over the course of the year. There are several factors that explain this performance.
First, Snap redesigned its Snapchat app a second time for the Android phone (the platform's previous rebuild had been a major flop), and it is much improved. Second, the company's user growth seems to have finally taken off. Snapchat had 186 million daily active users (DAUs) at the end of its fiscal year 2018, a metric that had remained flat versus the fourth quarter of 2017. But at the end of the third quarter in 2019, Snapchat had 210 million DAUs, a 13% increase year over year.
It is also worth noting that Snapchat has done increasingly better at monetizing its users. During the third quarter, ARPU was $2.12, a 33% increase over the year-ago period. Fortunately, there are good reasons to think Snap can continue performing as well as it did during fiscal year 2019. The company's user base is projected to keep growing, and according to the research firm eMarketer, Snapchat could have as many as 293 million users by 2023.
Furthermore, Snap is investing in several features to help attract and keep more of its users. For instance, there are the company's original shows, available exclusively on its Discover feature. Snap recently released a slate of these shows, and given the increased popularity of its Discover platform, and the success of one of its first originals called Dead of Night (which had more than 14 million unique views since it was released in September), this initiative could be a major success.
With Snap's growing user base, increased monetization of its platform, and its initiatives to continue its upward trajectory, the comeback will likely continue.
