Better Social Media Stock: Meta Platforms vs. Snap

Meta Platforms (META -0.07%) and Snap (SNAP 3.04%) both recently posted third-quarter reports that exceeded Wall Street’s expectations. However, Meta’s stock dipped after its earnings beat as Snap’s stock jumped to a near-two-month high.

But over the past 12 months, Meta’s stock has still rallied nearly 90% as Snap’s stock advanced about 20%. Let’s see why the social media leader outperformed its smaller competitor by such a wide margin — and if it will remain the better buy for the foreseeable future.

Image source: Getty Images.

Both social media companies are still gaining users

Meta Platforms is already the world’s largest social media company. Its entire family of apps (Facebook, Messenger, Instagram, and WhatsApp) served 3.29 billion daily active people (DAP) in the third quarter. That represented 5% growth from a year ago.

Snap’s Snapchat continues to lock in younger users with its ephemeral messages, stories, and augmented reality filters. Its total number of daily active users (DAUs) grew 9% year over year to 443 million in Q3 2024.

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

Snap is smaller but growing faster than Meta, while Meta is still gaining new users at an impressive rate. Meta didn’t provide any near-term guidance for its DAP growth, but Snap expects its DAUs to grow another 9% year over year to approximately 451 million in the fourth quarter of 2024.

Meta has been growing faster than Snap

Snap has been gaining new users at a faster clip than Meta, but Meta consistently grew its top line at a faster rate than Snap over the past year.

Data source: Quarterly earnings reports.

Both companies generate most of their revenues from ads, but Meta’s Facebook and Instagram have a lot more pricing power in that market than Snapchat. Meta generated an average revenue per person (ARPP) of $12.29 across its platforms in Q3, which represented 12% growth from the previous year, while Snap’s comparable average revenue per user (ARPU) only increased 6% year over year to $3.10.

A lot of Meta’s recent growth was driven by Chinese e-commerce and gaming companies, which bought more ads on Facebook and Instagram to reach overseas customers. Those companies bought fewer ads on Snapchat and other social media platforms.

Meta and Snap are both countering ByteDance’s TikTok with their own short video platforms. Meta’s Reels seems to be gaining more momentum than Snap’s Spotlight, but both platforms could gain more users if the U.S. actually bans TikTok in January.

Analysts expect Meta’s revenue to rise 20% in 2024 and 15% in 2025. They expect Snap’s revenue to grow 17% in 2024 and 13% in 2025.

Meta is still more profitable than Snap

Meta remains firmly profitable even as its Reality Labs division, which develops its loss-leading augmented and virtual reality devices, burns billions of dollars each quarter. Snap, which operates a much smaller hardware division than Meta, is still deeply unprofitable.

Data source: Quarterly earnings reports.

That’s why it’s odd that Snap repurchased $311 million in shares in the first nine months of 2024 and authorized a new $500 million buyback. It’s presumably buying back those shares to offset the dilution from its stock-based compensation, but it’s not a good look for an unprofitable company.

Meta also plowed $30.1 billion into its buybacks in the first nine months of 2024, but that strategy makes a lot more sense relative to its stable profits and healthy cash flows. Meta also initiated its first dividend earlier this year and pays a token forward yield of 0.35%.

Analysts expect Meta’s earnings per share to grow 52% in 2024 and 11% in 2025, even as it ramps up its cloud infrastructure, artificial intelligence (AI), and Reality Labs investments over the next few quarters. They expect Snap to gradually narrow its net losses over the next two years.

Which stock has a brighter future?

Meta still looks reasonably valued at 8 times next year’s sales and 23 times forward earnings. Snap can’t be valued by its non-existent earnings yet, but it looks historically cheap relative to its top-line growth at just 3 times next year’s sales.

Meta’s stock pulled back after its latest report amid concerns about its near-term spending, but I think it’s still a better long-term investment than Snap. Meta is growing faster, it’s more profitable, and it’s still gaining users at a healthy rate even though it already serves more than 40% of the world’s population.