Better Social Media Shares: Meta Platforms vs. Snap

Shares of Meta-platforms (META 3.86%) And Snap in (NAB -0.80%) went in opposite directions following their latest earnings reports. Meta’s stock rose 5% on August 1 after its second-quarter report comfortably beat analysts’ estimates for both revenue and profit. Snap’s stock plunged 16% the same day as fourth-quarter revenue fell short of analysts’ expectations and adjusted profit only met consensus forecasts.

Over the past three years, Meta’s stock has risen nearly 40% while Snap’s stock has fallen more than 80%, so will the social media leader continue to beat the struggling underdog?

Image source: Getty Images.

Which company gains more users?

Meta is the world’s largest social media company. It ended the second quarter of 2024 with 3.27 billion daily active users (DAP) across its family of apps (Facebook, Instagram, Messenger and WhatsApp), up 7% year-on-year.

Snap has carved out a niche among younger users with its ephemeral messaging and augmented reality filters. Total daily active users (DAUs) rose 9% year-over-year to 432 million in the second quarter of 2024.

Over the past year, Meta’s DAP growth has remained remarkably stable – but Snap’s DAU growth slowed, falling to single digits last quarter. If it continues like this, Snap could end up growing its daily audience more slowly than Meta.

Data source: Quarterly earnings reports. YOY = Year over Year.

Which company achieves stronger sales growth?

Both Meta and Snap generate the majority of their revenue from advertising, but last year Meta grew its revenue much faster than Snap, even though the number of daily active users on its apps grew more slowly than Snapchat.

Data source: Quarterly earnings reports.

For the third quarter, Meta expects revenue to increase 13 to 20 percent year over year, while Snap expects growth of 12 to 16 percent. It’s usually a warning sign when the underdog grows more slowly than the market leader.

Meta has grown faster than Snap because it is attracting more money from Chinese e-commerce and gaming companies (which target foreign consumers), while increasing its ad prices and ad impressions, expanding its short-video platform Reels to counter TikTok, and collecting more first-party data with its AI-powered algorithms to Apple‘s disruptive privacy changes on iOS.

Snap hasn’t garnered the same level of interest from Chinese advertisers, its video platform Spotlight hasn’t been able to compete with Reels and TikTok, and its ad rates have fallen even as total ad impressions have increased. Snap also relies too heavily on its foreign users – who generate only a fraction of the ad revenue its North American users generate – to drive its DAU growth.

Which company is more profitable?

Meta is consistently profitable under generally accepted accounting principles (GAAP), even though it subsidizes the expansion of its unprofitable Reality Labs division (which makes its VR and AR devices) with its higher-margin advertising revenue. Snap is still not profitable under GAAP principles and is expected to remain in the red for the foreseeable future.

Data source: Quarterly earnings reports. On a GAAP basis.

For the full year, analysts expect Meta’s operating margin to increase 4 percentage points to 39% and Snap’s operating margin to improve about 12 percentage points to negative 18%. That would be a step in the right direction for Snap, but the company is still pouring a lot of money into buybacks to offset the dilution of its stock-based compensation. That’s not a good picture for an unprofitable company with negative cash flows.

In fact, over the past five years, Snap’s outstanding share count has increased by 18%. Meta, which launched a $50 billion buyback plan earlier this year, reduced its outstanding share count by 11% over the same period.

The ratings and the verdict

Meta is trading at 25 times expected earnings, making it the second cheapest stock in the “Magnificent Seven” after alphabetSnap cannot be valued on its GAAP earnings, but trades at 58 times non-GAAP earnings, excluding stock-based compensation and other one-time expenses.

The choice between Meta and Snap is simple. Would you rather invest in the world’s largest social media company, which is still growing despite already serving around 40% of the world’s population, or the niche underdog that’s trying to keep up with its nimbler competitors while raking in tens of millions of dollars each quarter? Meta’s stock is also cheaper relative to its growth potential – so it should easily stay ahead of Snap for the foreseeable future.