Better Growth Stock: Meta Platforms vs. Pinterest

Meta Platforms (META 3.34%) and Pinterest (PINS 1.54%) can be considered the David and Goliath, respectively, of the social media market. Meta served 3.98 billion people across Facebook, Messenger, Instagram, and WhatsApp monthly at the end of 2023. Pinterest served 498 million monthly active users (MAUs) at the end of the year.

Meta’s social networks enable people to stay in touch with their friends, family, and co-workers, or to follow brands and public figures. Meta also sells virtual and augmented reality devices, and it launched an “X-like” platform called Threads last year. Pinterest’s virtual pinboards are mainly used to share interests, hobbies, and ideas with other users, and its visual format makes it a natural fit for e-commerce sales.

Over the past 12 months, Meta’s stock soared nearly 180% as Pinterest’s stock rose 40%. Let’s see why Meta outperformed Pinterest, and if it’s still the better buy.

Image source: Getty Images.

Meta’s growth accelerated again in 2023

Meta’s revenue and earnings per share (EPS) declined 2% and 38%, respectively, in 2022. That slowdown was caused by Apple‘s privacy changes on iOS, which disrupted its ability to harvest data from third-party apps; stiff competition from ByteDance‘s TikTok; and the macro headwinds for the advertising sector.

As Meta’s ad sales slowed down, it continued to burn billions of dollars each quarter on its unprofitable Reality Labs segment, which develops its augmented reality and virtual reality products.

That combination of slowing growth and rising expenses rattled the bulls. But in 2023, its revenue and EPS rose 16% and 73%, respectively, as it overcame those challenges. Meta dealt with Apple’s changes by mining more first-party data with its AI algorithms, countered TikTok with the expansion of Reels, and attracted a lot of ad dollars from Chinese gaming and e-commerce companies as they targeted overseas customers.

It also offset its declining ad prices with more ad impressions. As its advertising business recovered, it continued to expand its Reality Labs division — but it still had enough cash to initiate its first dividend at the end of 2023 and boost its buyback plan by $50 billion.

Analysts expect Meta’s revenue and EPS to rise 17% and 34%, respectively, in 2025. Its stock is hovering near its all-time high, but it still looks reasonably valued at 25 times forward earnings, and it pays a token forward dividend yield of 0.4%.

Pinterest has recovered from its post-pandemic slowdown

Pinterest’s revenue only increased 9% in 2022 as it turned unprofitable on a generally accepted accounting principles (GAAP) basis. That represented a significant slowdown from its 52% growth in 2021 and 48% growth in 2020.

During the pandemic, many people flocked to Pinterest to find ideas for recipes, home improvement projects, family activities, and online shopping ideas. But many of those users left after the pandemic passed, and the macro headwinds for the advertising market exacerbated that slowdown. That deceleration drove the bears to declare that Pinterest was a fad stock.

In 2023, Pinterest’s revenue rose just 9% again and it remained unprofitable. However, it returned to GAAP profitability in the second half of 2023, while its MAUs increased 11% to 498 million for the full year and accelerated from its 4% MAU growth in 2022. That stabilization was driven by an influx of Gen Z users, which reduced its dependence on older users; its overseas expansion; fresh video content; and AI-driven recommendations. More merchants also launched “shoppable pins” that turned Pinterest’s pinboards into a decentralized e-commerce marketplace.

Analysts expect Pinterest’s revenue and adjusted EPS to rise 18% and 24%, respectively, in 2024 as its business stabilizes and the macro environment improves. At 28 times forward earnings, it’s a bit pricier than Meta and doesn’t pay a dividend, but it might remain a good long-term play on the “social shopping” market.

The better buy: Meta Platforms

Pinterest’s business is recovering, but Meta is clearly the better pick right now because it’s more broadly diversified, more profitable, and trades at more attractive valuations than Pinterest. Meta is also growing at a similar rate as Pinterest even though it serves eight times as many monthly active users worldwide, so the social media underdog might need to grow a lot faster than the market leader to attract the attention of growth-oriented investors.