OSocial media stocks have been some of the biggest beneficiaries of the COVID-19 pandemic. During lockdowns, engagement on these new-age platforms increased. Then, as the economy recovered, advertising dollars returned to these platforms with a vengeance, leading to booming revenue growth.

And yet, not all social media stocks are the same, with each platform differently positioned amid the economic reopening. That was on display this earnings season, with up-and-comers Snap, Inc. (SNAP -4.04%) and Pinterest (PINS -1.55%) moving in vastly different directions. Snap surged almost 25%, and Pinterest plunged almost 20% immediately after disclosing second-quarter results.

But after each stock's big move, which social media stock is the best bet now?

A trio of people look at one's smartphone outdoors.

Image source: Getty Images.

Active user growth determined each stock's move

Lapping easy comparisons with the first full quarter of lockdowns a year ago, both companies actually saw similar revenue growth. Snap's revenue surged 116%, while Pinterest's revenue grew an even higher 125%.

So why did Pinterest plunge while Snap surged? While Pinterest greatly improved its monetization, monthly active users (MAUs) grew only 9%, with U.S. monthly active users actually declining 5%. That's in stark contrast to Snap, which saw 23% daily active user growth and 6% growth in North America.

Since future revenues ultimately come from users and engagement, it's not unreasonable that investors would bid Snap's shares higher and Pinterest's stock lower, despite Pinterest's stronger revenue growth.

But Snap is much more expensive today

After each stock's move, Snap is valued at a whopping 34 times sales, while Pinterest is only valued at around half that, at 17.5 times sales. Not only is Pinterest far cheaper, it's actually profitable, earning $69 million in GAAP net income last quarter. Meanwhile, despite booming growth, Snap isn't yet profitable, logging a $152 million net loss in the second quarter.

Of course, investors aren't exactly concerned with near-term profits for high-growth tech stocks. And in Snap's defense, its losses narrowed by over 50%, with gross margins expanding by nine percentage points, and infrastructure costs down from $0.69 per DAU last year to $0.62 per DAU last quarter.

Operating expenses were only up 39%, far less than revenue growth, even as the company invested in a slew of new innovations, including advanced augmented reality and virtual reality applications; Spotlights, which are sort of like stories made by creators for large audiences; and original shows and video games designed for Snap's platform.

Snap has been doubted many times before, with skeptics pointing to perpetual losses, and the ability of rival platforms such as Instagram to easily mimic its features. However, Snap's consistent innovation and loyalty among young users appear to be sustainable, and it's paying off big today.

What Pinterest shareholders can learn from Snap's experience

It makes sense that Pinterest's user growth may decelerate or go in reverse more than Snap's amid the reopening; after all, Pinterest's app is geared to finding interesting home goods and items, or perhaps a new recipe. In contrast, Snapchat is more about communication between friends and sharing experiences, whether at home or on-the-go out of the house.

In addition, Pinterest shareholders may actually take heart from Snap's experience. After going public in 2017, Snap's stock struggled mightily for years. In fact, in late 2017, user growth was lagging, and Snap decided to totally revamp its app. Not all users liked the changes, with many -- including celebrities like Kylie Jenner -- bashing the revamped changes. Just one year after going public, the stock plunged far below its IPO price.

However, eventually Snap's commitment to continuous improvement and innovation paid off. After three years of its stock trading below the levels seen on its IPO date, Snap's stock finally took off around the middle of 2020. The stock has basically tripled since then, and is up some 12 times over its all-time lows.

Could the same happen for Pinterest? Well, Pinterest has actually done far better than Snap did in its first two years. Even after last month's plunge, Pinterest's stock is still about 2.5 times its IPO price from two years ago.

Yet in spite of temporary headwinds, Pinterest is also innovating at a rapid pace. Currently, Pinterest is expanding into video formats, with "Idea Pins" on the creator side, giving users the ability to make short-form videos to complement their pins, as well as video ads to complement the new format. Management said Idea Pins have grown seven-fold since the beginning of the year, and the company has yet to even really monetize this new product format. CEO Ben Silbermann said on the conference call with analysts:

I might remind folks that we went through a similar exercise with shopping over the last couple years where we made an investment in the user experience first to find product market fit before we put our foot on the gas around monetizing. And I view this similarly: we're investing in the user experience to get this content marketplace up and running with Idea Pins on the belief that with the right product market fit, will drive organic engagement and be able to follow with monetizable engagement over time. 

Pinterest management has been able to monetize new products and ad auction formats in the past, so there's a good chance it could succeed again. If it does, the recent dip could be a great long-term opportunity. If you're a Pinterest user and are enjoying the new Idea Pins, you may have a leg up on the rest of the market in getting an early jump on the promise of Idea Pins.

The bottom line is: While Snap's business is firing on all cylinders, it is a very expensive stock, and Pinterest may have been overly punished by the market amid the reopening headwinds. It doesn't appear that Pinterest is any less of a great company than it was prior to the recent quarter, so if I had to choose one social media stock, I'd choose buying Pinterest's dip as the better long-term opportunity.