Better buy: Snap or Facebook?

0


Social media has already changed the world, but its transformative impact is probably only just beginning. Emerging technologies, including augmented reality (AR) and the metaverse, will change the way people communicate and view the world, and these trends are likely to produce big gains for large companies.

Break (NYSE: SNAP) and Meta-platforms (NASDAQ: FB), formerly known as Facebook, stands out as two potentially promising stocks for investors looking to profit from the growth of social media, augmented reality (AR), virtual reality (VR) and the metaverse. With this in mind, investors may wonder which company seems to be the best buy today. Here is the bullish case for each action as well as the verdict on which the winner is.

Image source: Getty Images.

Snap: focus on your future potential

Keithen Drury: Unlike the Meta Platforms, Snap doesn’t have the government watching it like a hawk. Being free from this burden allows him to conduct his affairs as he sees fit.

Snap’s Snapchat app allows its users to communicate via images or videos and also has an SMS option. It also offers a map for users to see where their friends are and uses augmented reality (AR) to change the way the world is viewed through a camera lens. It earns money from advertisements on its platform via AR promotions or advertising videos that appear while users are watching stories.

Snap still has a long way to go to catch up with Meta, but that’s what makes it a better buy. In the third quarter, Snap increased revenue by 57% to over $ 1 billion. Daily active users (DAU) also increased by 23%. Revenue is growing faster than customers, indicating that Snap is more successful at monetizing its user base. It increased its average revenue per user (ARPU) significantly during the quarter.

Global North America Europe Rest of the world
28% 49% 34% 3%

Source: Snap. Year-over-year growth in average revenue per user (ARPU).

Even with this strong growth, North American and European users are producing an ARPU of $ 8.20 and $ 1.92 respectively. Meta reports an ARPU of $ 52.34 for the United States and Canada, and $ 16.50 for Europe. Meta is more advanced, but if Snap can continue to grow its revenue, it will be a solid investment.

One important benchmark that Snap has yet to hit is profitability. It does not consistently generate free cash flow and consistently shows a negative net loss margin. It also dilutes its number of shares by around 4% per year. The valuation of Snap is also rich; it is trading at 23 times sales. Stocks recently fell more than 30% from their September highs. Investors looking to start or increase a position should take advantage of the reduced market price.

Much of Snap’s investment thesis is based on its potential. If he can continue to increase his ARPU for each region, he should generate enough income to overcome his expenses. Instant investors should be aware of the risks associated with the business. On the one hand, social media platforms can quickly go out of style. However, with 90% of 13-24 year olds using the platform in its established markets, Snapchat is “in the foreground” for a significant demographic.

Meta-platforms: these foundations are too strong to ignore

Keith Noonan: Meta Platforms is a proven winner with massive resources at its disposal. In addition to its considerable cash flow, the company also has a clear leadership position in social media which should help it capitalize on new growth opportunities. About 45% of the world’s population interacts with its services, which include Facebook, Instagram, and WhatsApp.

Snap is a promising company in many ways, and the fact that it is still relatively small compared to Meta Platforms suggests that it may find it easier to generate relative growth. However, I think Meta’s resource advantage gives it better risk-reward dynamics.

Meta Platforms has established itself as a leading player in the digital advertising market and has proven that it can generate huge profits while making large investments to drive future growth. Despite its already massive size, Facebook managed to grow its sales by 35% year-over-year in the third quarter, and net profit was up 17% from the previous year period.

The Facebook platform alone closed in September with around 2.9 billion monthly active users. Across the company’s entire product portfolio, it ended the period with nearly 3.6 billion monthly active users.

Meta Platforms has also made some big acquisitions, bringing together talented video game and application development studios under its corporate umbrella and positioning itself as a long-term winner in interactive content. The company’s Oculus platform is already at the forefront of virtual reality, and the incredible reach and breadth of resources of the social media leader should help it become a market leader in AR and digital media as well. metaverse.

Meta Platforms certainly faces branding and regulatory challenges. The massive size of the company, dominance of the social media space, and content policies have placed it in a prime position for scrutiny at a time when the regulation of social media platforms is a burning issue. To some extent, the name change from “Facebook” to “Meta Platforms” reflects this dimension of the risks associated with the business, but I think there’s a good chance that the tech giant can meet these challenges. .

What action is right for you?

The Snap and Meta platforms each have intriguing growth potential and appear poised to shape potentially revolutionary technology and communications trends. This is a case where investors who see promise in AR, VR, and Metaverse may want to buy both stocks.

Otherwise, it’s probably best to approach a choice between the two with your risk tolerance and personal growth goals in mind. Snap stock may be able to generate more explosive growth, but Meta Platforms still appear to have big benefits despite potential regulatory and public image challenges.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


Share.

Comments are closed.