Last April, Facebook (NASDAQ:FB) introduced Messenger Rooms, which provided free video calls for up to 50 people at once, to keep pace with Zoom Video Communications (NASDAQ:ZM) during the pandemic.

Zoom's stock price initially dipped after Facebook's move, but it quickly recovered and remains up nearly 300% over the past 12 months. Facebook's stock only rose about 20% during the same period, as ongoing concerns about its core advertising business kept the bulls at bay.

But after the pandemic passes and more people return to work and school, Zoom could struggle to maintain its momentum as more investors recognize Facebook's fundamental strengths again. Will Facebook make a comeback and outperform Zoom this year, or are the social networking giant's weaknesses too glaring to ignore?

A young woman chats to her friends on a video conferencing platform.

Image source: Getty Images.

The differences between Zoom and Facebook

Zoom operates a freemium platform. Its free users can host meetings for up to 100 participants for up to 40 minutes at a time.

Its paid tiers, which start at $150 per year, offer meetings for more participants with extended time limits and additional features like cloud recording, social media streaming, and meeting transcripts. It generates nearly all of its revenue from these subscription fees.

Facebook's main platforms include its eponymous social network, Instagram, and WhatsApp. Last year, it generated 98% of its revenue from ads, which are displayed across its main platforms as well as third-party apps and websites via its Audience Network. These ads target users through their social media preferences, online activities, and other data.

The remaining sliver of Facebook's revenue mainly comes from its hardware business, which sells Oculus VR headsets and Portal smart screens. It likely sells these devices at razor-thin margins or losses to tether more users to its expanding ecosystem.

Zoom faces tough year-over-year comparisons

Zoom was already growing at an impressive rate prior to the pandemic. Its revenue rose 88% to $622.7 million in fiscal 2020, which ended last January, and its adjusted net income soared 514% to $101.3 million.

But in the first nine months of fiscal 2021, Zoom's revenue surged 307% year over year to $1.77 billion, and its adjusted net income rose nearly 11-fold to $630.3 million.

Zoom attributes that acceleration to an unprecedented shift toward remote work, online learning, and social video calls during the pandemic. Its simple interface, catchy brand, and early-mover's advantage all helped it retain a comfortable lead against its rivals. Zoom doesn't regularly disclose its number of users, but it claimed its platform hosted over 300 million daily active participants last April.

Zoom will report its full-year earnings on March 1, and it expects its revenue to rise 314% and for its adjusted earnings to increase 726%-731%. But in fiscal 2022, analysts expect its revenue and earnings to rise just 38% and 3%, respectively, as the pandemic passes.

Facebook faces existential challenges

On the surface, Facebook's business looks strong. Its revenue rose 22% to $86 billion in fiscal 2020 as its net income jumped 58% to $29.1 billion. Its ad growth decelerated during the pandemic, but it recovered in the second half of the year as the initial headwinds waned and it sold more political ads.

Facebook CEO Mark Zuckerberg.

Image source: Facebook.

It ended the year with 2.8 billion monthly active users on its main platform, up 12% from 2019. An average of 3.3 billion people used its entire "family" of apps, including Instagram and WhatsApp, up 14% from a year ago.

But if we dig deeper, we'll spot some serious challenges. Facebook's inability to stop the spread of misinformation across its platforms was linked to the deadly Capitol riot on Jan. 6, and has sparked serious questions about its business model.

It faces antitrust pressure both at home and abroad, and Apple's forthcoming iOS 14 update -- which lets users opt-out of targeted ads -- could significantly reduce its ad sales. It also faces pressure in Australia and Canada over proposed payments for news content.

But despite all those challenges, analysts still expect Facebook's revenue and earnings to rise 25% and 13%, respectively, in fiscal 2021, as advertisers continue to purchase ads across its platforms.

The valuations and verdict

Zoom's stock looks pricey at 130 times forward earnings and more than 30 times next year's sales, but I suspect analysts' estimates for fiscal 2022 are actually too low.

The pandemic could drag on for much longer than expected, and many businesses, schools, and individuals could continue to use its video conferencing tools after the crisis ends. If Zoom clears Wall Street's low bar for next year, the estimates will quickly rise and its forward valuations could contract.

Meanwhile, Facebook's stock looks cheap at 19 times forward earnings and seven times this year's sales. But I think the analysts might be too dismissive of the unpredictable headwinds that could curb its growth -- so Facebook's stock could actually be much pricier than it appears.

Based on these facts, I'd prefer to nibble on Zoom even at its much higher valuation than bet on Facebook's potential recovery. Zoom is definitely more speculative, but it arguably faces fewer existential challenges than Facebook.

 
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.