3 Social Stocks Standing Out in a Narrowed Field
Elon Musk buying Twitter has social media stocks in focus. Here's what the pros think about the three primary players remaining.
Social media stocks are in the limelight following news that one of their own will soon be taken private.
Specifically, Twitter (TWTR) put out a press release late in the day on April 25 confirming that its board of directors had agreed to Elon Musk's offer to buy the social media platform and take it private for $44 billion, or $54.20 a share.
By purchasing Twitter and taking it private, Musk has narrowed the list of social stocks for investors to choose from.
Here, we take a closer look at three top-rated social media stocks to watch post-Twitter. Each name featured here sports a consensus Buy recommendation from analysts and has solid growth prospects for the remainder of 2022.
Data is as of April 25. Analysts' ratings courtesy of S&P Global Market Intelligence. Stocks are listed by analysts' consensus recommendation, from highest score (worst) to lowest (best).
- Market value: $13.2 billion
- Analysts' consensus recommendation: 2.44 (Buy)
According to S&P Global Market Intelligence, Pinterest (PINS, $20.00) has a whopping 22 Hold ratings and one Sell recommendation. This compares to 11 analysts who rate it a Strong Buy or Buy. So while the social media stock's consensus rating is a Buy, it's only by the thinnest of margins.
Still, PINS currently trades at a reasonable 5.3 times sales. And while the online product and idea discovery company is considered more of a long shot over the next 12 months, Pinterest is not deterred.
The company continues to grow its user base by entering into partnerships with some of e-commerce's biggest platforms. For example, on April 13, it announced a partnership with WooCommerce – an open-source e-commerce platform with more than 3 million sellers – connecting its merchants with Pinterest's more than 400 million monthly active users (MAUs).
"WooCommerce merchants can create or connect a Pinterest for Business account and automatically sync their product catalog, turning their products into browsable product Pins," the company stated in its press release. "By installing the Pinterest tag, users can measure conversions on their Pinterest ads and optimize these ads for shopping campaigns or retargeting."
According to Pinterest, when its users make purchases, they usually spend 2x more than buyers on other platforms. That's a number that should keep merchants engaged with the company's shopping tools.
One of the 22 analysts giving PINS a Hold rating is Argus Research's John Staszak. The analyst points to decline in monthly active users in both the third and fourth quarters of 2021 and concerns over the company's weaker revenue guidance. Still, Staszak's long-term rating is a Buy due to Pinterest's strong brand recognition in the U.S. and internationally.
Staszak has an earnings estimate of $1.34 a share for 2022 and $1.62 per share in 2023, though both are improvements over the $1.13 per share PINS reported in 2021. While it's cheap from an earnings perspective, PINS is the lowest-rated of the social stocks featured here.
- Market value: $507.6 billion
- Analysts' consensus recommendation: 1.72 (Buy)
From a value perspective, it's hard not to like Meta Platforms (FB, $186.99). The parent company of Facebook trades at just 4.5 times sales, almost half Twitter's valuation, and its operating income in 2021 was a healthy $46.8 billion. Comparatively, Twitter's operating income in fiscal 2021 was just $270 million.
Elon Musk will have to perform miracles for Twitter's operating income to get anywhere near Meta Platforms.
UBS Global Research published a research report for the U.S. internet industry on April 20. It was quite positive about FB's business in the second half of 2022.
"We are increasingly upbeat on the second-half bull case on Meta shares, and while Street estimates look high to us, we think this is largely priced into shares already and the risk/reward skew looks positive," UBS analysts – who have a Buy rating on FB – wrote in the report.
Susquehanna Financial Group analyst Shyam Patil is also bullish on FB, rating the social stock at Positive, which is the equivalent of Buy. Patil also has a $217.31 price target, representing implied upside of 16.2% from current levels.
Over at Credit Suisse, analyst Stephen Ju lowered his FB target price on April 21 by 19%, from $336 to $272, though that still provides for significant upside over the next 12 months.
Ju maintained an Outperform (Buy) rating on FB stock due to "potential for better than-expected ad revenue growth on product innovation (Facebook Shops, Search in Marketplaces, etc.)."
The analyst also points to conservative Street models that "underestimate the long-term monetization potential of other billion-user properties like Messenger and WhatsApp," as well as the ability for "faster free-cash-flow growth on greater efficiency on content screening/security costs."
Despite FB shares being hit with broad-market headwinds in 2022, most analysts agree that it is one of the best social media stocks out there. Of the 54 following the stock that are tracked by S&P Global Market Intelligence, 32 have it at Strong Buy, eight say Buy, 12 call it a Hold and just two rate it at Sell or Strong Sell.
All in all, Meta Platforms is one of the strongest Buys among social stocks. The company generates so much cash it's hard to ignore.
- Market value: $48.8 billion
- Analysts' consensus recommendation: 1.59 (Buy)
Snap (SNAP, $29.91) reported its Q1 2022 results on April 21. It lost 22 cents per share in the quarter, which was 5 cents worse than analysts expected. However, revenues were in-line with the consensus at $1.06 billion, while the company's daily active users (DAUs) came in at 332 million, up 18% year-over-year.
Despite SNAP stock falling on the news, CEO Evan Spiegel feels the solid growth in DAUs reflects the company's momentum – even with the operational challenges faced by social media stocks so far 2022. In the second quarter, it expects to grow sales by at least 20% over Q2 2021.
Analysts, meanwhile, are targeting 24% year-over-year revenue growth for Snap in the second quarter. This reflects Wall Street's bullish bias toward the social stock. Of the 41 analysts covering SNAP tracked by S&P Global Market Intelligence, 25 have it as a Strong Buy, eight as a Buy and eight say it's a Hold. There are no Sell recommendations at the moment.
"Snap in our view has been able to adapt to changes in Apple's ad-tracking policy; rivals such as Meta Platforms have struggled with those changes," says Argus Research analyst Jim Kelleher (Buy). Kelleher adds that while the process of addressing these issues is ongoing, "underlying fundamentals at the selfie company appear to be strengthening, not weakening."
BofA Securities analyst Justin Post (Buy) admitted it was a "tougher environment" in Q1 and that Snap and other social media stocks could see "future disruptions. Still, SNAP "is well positioned to accelerate in the second half of 2022," the analyst adds.
Post specifically points to solid two-year revenue trends, strong user growth and multiple product catalysts that could boost average revenue per user (ARPU) metrics as reasons he likes Snap, as well as the social stocks valuation. Snap is currently trading at 10.7 times sales.
So it is also a Buy, but perhaps for more aggressive investors.