Pinterest (PINS 2.11%) and Snap (SNAP 2.24%) are similar in that they are both social media companies. Each thrived at the pandemic's onset when folks were stuck at home isolated from friends, family, and colleagues.
However, as economies reopen, the demand for in-home entertainment is decreasing and people are spending more time outdoors. That headwind partly explains why the shares of both Pinterest and Snap have performed poorly so far in 2022. Another cause is the market's disfavor of risky growth stocks.
That said, Snap stock is not falling as hard as Pinterest. Let's look at why that's the case.
Pinterest and Snap user figures are diverging
Both Pinterest and Snap are free to join and use. The companies make money by showing advertisements to users browsing the platforms. Therefore, total user figures are vital to their success. Unsurprisingly, marketers would be willing to pay more if they could get more people's attention. In that regard, Pinterest is struggling. The image-based social media company has shed monthly active users (MAU) for three consecutive quarters.
MAU peaked for Pinterest in the first quarter of 2021 at 478 million. After falling in the second, third, and fourth quarters, Pinterest now boasts 431 million MAU. The fall in users is attributed to the economic reopening. Folks who spend more time at home are more likely to look to Pinterest for inspiration on activities conducted at home like cooking, redecorating, or woodworking. And because the streak of consecutive quarters with user losses is not yet over, investors fear the trend could continue much longer.
Alternatively, Snap is not experiencing user losses. Instead, it has continued adding daily active users (DAU) throughout 2021. Even as economies reopened, Snap went from 265 million DAU to start the year and ended with 319 million DAU.
Snap reports DAU while Pinterest reports MAU. Of course, DAU are more valuable because they log on at least daily. The divergence between user losses at Pinterest and gains at Snap can explain why Snap is outperforming Pinterest in 2022.
Snap is considerably more expensive than Pinterest
Given the magnitude of customer acquisition outperformance by Snap, it would appear surprising that its stock didn't do far better than Pinterest's. After all, they are only separated by roughly 9% in 2022. In my opinion, their stock prices did not diverge more because Snap is already so much more expensive than Pinterest.
Snap is trading at a price-to-sales ratio more than double that of Pinterest. Further, Snap is more than 10 times more expensive than Pinterest on a price-to-free-cash-flow basis. Certainly, Snap is better at handling the economic reopening, but its superior business characteristics are arguably already priced into the stock. If Pinterest can stem user losses, it has an excellent opportunity to narrow that valuation gap with Snap.