Pinterest (PINS -0.29%) and Snap (SNAP 3.48%) both recently dazzled investors with their latest earnings reports.
Pinterest's revenue rose 58% year-over-year to $443 million in the third quarter, clearing estimates by $55 million. Its adjusted earnings jumped from $0.01 to $0.13 per share, beating expectations by $0.10.
Snap's revenue rose 52% year-over-year to $679 million in the third quarter, beating expectations by $127 million. It posted an adjusted profit of $0.01 per share, which also beat expectations by six cents.
Image source: Getty Images.
Those reports propelled both social media stocks to all-time highs. Pinterest's stock has now more than tripled from its IPO price, while Snap's stock has more than doubled. But should investors chase either high-flying stock right now?
Accelerating revenue growth
Both companies' revenue growth accelerated significantly in the third quarter. Pinterest's revenue rose at its fastest rate in five quarters, while Snap generated its strongest revenue growth in over two years.
Both companies are also generating double-digit user growth and gaining overseas users at a faster clip than domestic ones.
Pinterest's global monthly active users (MAUs) grew 37% year-over-year to 442 million, which marked a slight deceleration from its 39% MAU growth in the second quarter. Within that total, its U.S. MAUs rose 13% to 98 million, and its international MAUs jumped 46% to 343 million.
Snap's daily active users (DAUs) rose 18% year-over-year to 249 million, accelerating from its 17% growth in the second quarter. Its North American DAUs rose 7% to 90 million, its European DAUs grew 10% to 72 million, and its Rest of World DAUs jumped 43% to 87 million.
Expanding ecosystems and rising ARPU
Pinterest and Snap's overseas businesses are rapidly growing, but their domestic users still generate higher ARPU (average revenue per user) than their overseas counterparts.
Image source: Pinterest.
Pinterest's U.S. ARPU rose 31% to $3.85 during the quarter. Its international ARPU grew 66% to $0.21, and its total ARPU increased 15% to $1.03 -- compared to a 21% decline in the pandemic-stricken second quarter.
Pinterest gained more younger users during the quarter, which diversified its core market away from older females, and its advertisers accelerated their ad spending as larger social media platforms like Facebook (META -11.27%) faced boycotts. Pinterest's shoppable pins also enabled it to counter Facebook's Instagram in the "social shopping" market.
Snap's ARPU in North America grew 46% to $5.49 and 36% to $1.43 in Europe, but dipped 6% to $0.95 in the Rest of World segment as its DAU growth outpaced its ad sales. Its total ARPU still rose 28% to $2.73.
Snap's ARPU was boosted by its ever-expanding ecosystem of filters, lenses, videos, and games. It remains a top social network for teens in the U.S., and its Rest of World APRU should rebound as advertisers chase its impressive DAU growth and popularity among Gen Z users.
Narrower net losses and rosy guidance
Pinterest and Snap aren't profitable on a GAAP basis, which includes stock-based compensation and other expenses, but their losses narrowed in the third quarter. Pinterest's net loss narrowed year-over-year from $125 million to $94 million, while Snap's net loss narrowed from $227 million to $200 million.
Both companies consider adjusted EBITDA to be a better measure of their earnings growth. Pinterest's adjusted EBITDA surged year-over-year from $4 million to $93 million, while Snap's posted an adjusted EBITDA of $56 million -- compared to a loss of $42 million a year ago.
Pinterest expects its revenue to rise "around 60%" year-over-year in the fourth quarter. Snap didn't provide any guidance during its latest conference call, but CFO Derek Andersen said a 47%-50% year-over-year revenue growth rate would be "attainable" in the fourth quarter if the "current favorable operating conditions persist" into the holidays.
But mind the valuations
Pinterest and Snap are firing on all cylinders, but both stocks trade at about 19 times next year's sales. That price-to-sales ratio isn't as high as the valuation of some recent tech IPOs, but it's still frothy. Facebook, which is firmly profitable, trades at just eight times next year's sales.
Therefore, I wouldn't rush to buy either stock at these prices. But if I had to choose one over the other, I'd pick Pinterest. Pinterest generates stronger growth, and its versatile platform is naturally built for shoppable ads. Since both stocks are trading at similar valuations, it makes more sense to buy Pinterest instead of Snap.
