With the largest US social media companies that are more intensively controlled by regulators, investors in the digital space want to diversify their investments and take some exposure to small stocks without anti-currency risk.
In this group we have the shortlist Snap (NYSE 🙂 and Pinterest (NYSE 🙂 to analyze their current earning moment and the possible risks of their small size. Let us look deeper:
Snap Turnaround Shaky
The photo sharing app & # 39; s Snapchat operator was one of the most successful reversal stories of 2019, after starting to beat estimates in recent quarters. But that series of victories ended last week when the company reported sales for analysts' expectations. to $ 561 million, but it failed to reduce its losses, which increased to $ 0.17 per share compared to analysts' estimates of $ 0.12 per share.
Despite some disappointment with the sales figures, Snap continued to add daily users to the app, which underwent a major redesign last year. The daily user base reached 218 million in the fourth quarter, an increase of 8 million or 3.8% compared to the previous quarter. The figures marked the fourth consecutive quarter of growth in the metric.
However, this mixed profit report attracted sales pressure that abruptly ended Snap & # 39; s collection last year, which had increased its inventory by more than 100%. At the end of yesterday's session, Snap shares traded $ 17.61, down from the pre-earnings level of $ 19.03.
The company's financial and user statistics played a major role in outperforming the shares last year, but the regulatory oversight that major social media companies are facing is another big positive for Snap.
An app with a clear and defined audience and with little scope for abuse is in a much better position to withstand potential regulatory changes worldwide than colossi such as Facebook (NASDAQ 🙂 and Alphabet & # 39; s Google (NASDAQ 🙂 – the heavyweights on social media that some politicians want to break down.
Pinterest shows power
Pinterest in San Francisco has a site with more than 320 million monthly active users worldwide.
It serves as a digital bulletin board for photos and ideas for furniture, fashion, weddings, recipes and more, so that users can browse through a feed of "pins" containing images or videos. contain. Users can then save the pins on customizable boards to create ideas for everything from vacation plans to food recipes or shopping lists for vacations.
Pinterest management believes that their appeal to advertisers is very different from that of other social media companies when users visit the site with the intention of making a purchase. That makes ads an inherent part of the Pinterest user experience, rather than something negative.
Following the first public offering in April last year that raised $ 1.4 billion, the Pinterest stock showed some signs of strength. In 2019, the company's sales exceeded the $ 1 billion mark. It now expects sales to reach $ 1.52 billion in 2020, aided by new investments, including a program for verified traders that would initially focus on fashion and home furnishings.
Recent investments, from increasing the speed of uploads to adding videos with makeup tutorials or cooking directions, have stimulated the company's growth – both in terms of and users. Investors were fond of the recent direction of Pinterest, so this share has increased by 30% this year. The shares closed at $ 24.03 yesterday. But the value is still 34% lower than the 52-week high of $ 36.83.
Weekly price chart Pinterest
A major risk that keeps some investors on the sidelines is that the company suffers large losses and it can be a long journey before the company can show sustainable profitability. Pinterest ended 2019 with a loss of $ 1.36 billion, or $ 3.24 per share, compared to a loss of $ 63 million, or $ 0.50 per share a year earlier. Sales increased 51% to $ 1.14 billion, but the costs tripled more than to $ 2.53 billion
Both Snap and Pinterest offer a different risk-return comparison for investors. Although Snapchat has a growing young audience, Pinterest has a greater appeal to all age groups with its unique platform that helps people find ideas for shopping and inspiration.
In our opinion, Snap is more risky than Pinterest, despite some signs of revenue stability and user engagement statistics. Instagram, owned by much larger Facebook rival, remains an existential threat to Snap that is unlikely to go away.