Meta Platforms (META +0.98%) and Snap (SNAP 4.39%) went in opposite directions after their latest earnings reports. Meta's stock tumbled after the company followed up its first-quarter earnings beat with a light revenue forecast for the second quarter and a commitment to higher spending on its new AI initiatives. Snap saw its stock soar after it posted a strong first-quarter report and stable guidance for the second quarter.
However, Meta's stock remains up 24% for the year while Snap's stock has declined 6%. Meta's stock has also risen about 1,055% since its IPO in 2012, while Snap still trades slightly below its 2017 IPO price of $17. So will Meta continue to outperform Snap after its recent post-earnings plunge? Or is it time to buy Snap instead?
Image source: Getty Images.
The similarities and differences between Meta and Snap
Meta is the largest social media company in the world. Its family of apps -- Facebook, Instagram, Messenger, and WhatsApp -- served 3.24 billion daily active people in the first quarter of 2024. That represented 7% growth from a year earlier.
NASDAQ: META
Key Data Points
Snap's Snapchat served 422 million daily active users in the first quarter, which marked 10% growth from the previous year. It carved out a niche among younger users with its ephemeral messages and augmented-reality content.
Meta and Snap both generate nearly all of their revenues from ads. However, Meta has been expanding its Reality Labs segment, which houses its virtual and augmented-reality devices, and Snap has been expanding its Snapchat+ subscription platform, which topped 7 million subscribers in 2023, to gradually reduce its dependence on ads.
NYSE: SNAP
Key Data Points
How fast have Meta and Snap been growing?
Meta and Snap faced similar headwinds over the past two years. Apple's (AAPL +0.33%) privacy changes on iOS made it harder to craft targeted ads from third-party data, both companies struggled to keep up with ByteDance's TikTok, and the macro challenges drove many companies to rein in their advertising spending.
Meta and Snap addressed those challenges in similar ways. To cope with Apple's changes, both companies rolled out more tools for gathering first-party data for their ads. To catch up to TikTok in the short-video market, Meta launched Reels for Facebook and Instagram as Snap expanded its Spotlight platform. But over the past year, Meta grew at a much faster pace than Snap, despite being the larger company. Here's a look at recent year-over-year revenue growth at both companies.
|
Company |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
Q1 2024 |
|---|---|---|---|---|---|
|
Meta Platforms |
3% |
11% |
23% |
25% |
27% |
|
Snap |
(7%) |
(4%) |
5% |
5% |
21% |
Data source: Company quarterly earnings reports.
Meta benefited from an influx of spending from Chinese e-commerce and gaming companies, which ramped up their ad purchases on Facebook, Instagram, and Reels to reach more overseas customers. Those Chinese companies drove 5 percentage points of Meta's total revenue growth in 2023 and accounted for 10% of its top line. Meta also delivered more ad impressions to offset its slower growth in ad prices.
Snapchat didn't attract as much spending from those Chinese advertisers, and its average revenue per user (ARPU) declined in 2023 as it struggled to keep pace with Meta, TikTok, and other ad platforms in a challenging macro environment. However, Snap's ARPU finally rose again in the first quarter of 2024 as its North American business, which generates much higher revenue than its overseas users, recovered.
For the second quarter, Meta expects its revenue to rise 14%-22% year over year, while Snap expects 15%-18% growth. For the full year, analysts expect Meta's revenue to rise 18% as Snap's revenue increases 16%. Both companies could benefit from a ban or shutdown of TikTok in the U.S. next January.
Meta is still much more profitable than Snap
Snap's growth is stabilizing, but it's still unprofitable. Meta is firmly profitable, and its operating margin consistently expanded over the past year, even as it ramped up its spending on its cloud, virtual reality, and AI efforts. Here's a look at the recent operating margin for both companies.
|
Company |
Q1 2023 |
Q2 2023 |
Q3 2023 |
Q4 2023 |
Q1 2024 |
|---|---|---|---|---|---|
|
Meta Platforms |
25% |
29% |
40% |
41% |
38% |
|
Snap |
(37%) |
(38%) |
(32%) |
(18%) |
(28%) |
Data source: Company quarterly earnings reports.
Both companies plan to sequentially ramp up their infrastructure spending in the second quarter. However, analysts still expect Meta's operating margin to expand from 34.7% in 2023 to 38.5% in 2024 as the steady growth of its higher-margin advertising business offsets its higher spending. They expect Snap's operating margin to improve from (30.4%) in 2023 to (18.8%) in 2024, but it's expected to stay unprofitable for the foreseeable future.
The obvious winner: Meta Platforms
Meta and Snap trade at seven and five times this year's sales, respectively. Meta might seem a bit pricier, but it's also larger, growing faster, and more profitable. Meta also trades at just 12 times this year's projected adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), while Snap trades at 60 times that estimate.
Simply put, Meta's stock pulled back because the market's expectations were too high, but Snap's stock rallied because its expectations were too low. That said, Meta still seems like a much better investment in the growing social media market.
