Social media stocks have been feeling the heat this year as macroeconomic headwinds, including soaring inflation, rising interest rates, and geopolitical turmoil, have put a question mark on these companies’ main source of revenue – advertising.
This apprehension has also been reflected in their stock prices as shares of Pinterest (PINS), Snap (SNAP), and Meta Platforms (FB) have dropped by 38.5%, 37.9%, and 37.4%, respectively. However, the recent Q1 results for these stocks did not exactly bore out this apprehension, but they did reflect that macroeconomic headwinds will continue to weigh on these companies.
Twitter (TWTR) has been the only exception to this, with the stock jumping 14.6% year-to-date as the company has been snapped up by Elon Musk.
Using the TipRanks stock comparison tool, we compared Snap, Pinterest, and Meta Platforms following their Q1 earnings. We will also examine what Wall Street analysts are saying about these stocks.
Snap (NYSE: SNAP)
Snap’s CEO, Evan Spiegel, is dismissive of the metaverse. A Verge report from last week cited Spiegel’s statement to the Guardian that when it comes to the metaverse, “Just ask a room of people how to define it, and everyone’s definition is totally different.” As a result, Spiegel would prefer to concentrate on experiences built for the real world, that is, augmented reality (AR), rather than the metaverse.
Wall Street analysts seem to approve of this strategy. Jeffries analyst Brent Thill came away convinced that “SNAP is the dominant platform in AR” after attending the social media giant’s Partner Summit last week.
SNAP unveiled new products and features for its camera, creator, and developer platforms at this Summit. Thill found the improvements to SNAP’s AR shopping tool the “most compelling, and in our view, open the platform to a wider advertiser base.”
The analyst was also upbeat about SNAP’s new AR partnerships with companies like Nike (NKE) and expects that such partnerships are likely to drive up views for the company’s Lens studio – an application for artists and developers to build AR experiences.
As a result, the analyst has pegged SNAP as the “best growth idea in social” and reiterated a Buy on the stock with a price target of $52. Thill’s price target implies upside potential of 82.5% from current levels.
The stock has been on a downslide, with shares dropping 23.8% in the past month as its revenues and earnings missed Street estimates.
However, Wall Street analysts continue to be bullish about the stock with a Strong Buy consensus rating based on 21 Buys and five Holds. The average Snap stock forecast is $48.52, implying an upside potential of 70.3% from current levels.
Meta Platforms (NASDAQ: FB)
Shares of Meta Platforms have seen a sharp decline this year, with the stock tanking 36.6% year-to-date. This decline has been fuelled by a growing list of concerns for the company, including the slowest revenue growth rate in Q1 since its listing and a bleak Q2 outlook.
The social media giant has warned that the conflict between Russia and Ukraine has resulted in its advertising revenue and user growth slowing down. There are other headwinds hurting the stock, too including iOS policy changes, the uncertain regulatory and geopolitical environment, and rising competition.
However, Wall Street analysts like Baird analyst Colin Sebastian continue to be bullish on the stock with a Buy rating. Nonetheless, the analyst reduced the price target from $325 to $275 on the stock, implying an upside potential of 28.9% from current levels.
Sebastian brushed aside the macroeconomic and geopolitical concerns and pointed out that there are “signs of stability on the platform that could set the stage for outperformance in 2H-22.” The analyst cited the management’s tone on the Q1 earnings call that the “worst” could be over for Meta, as it has made some progress in “mitigating both revenue and competitive headwinds.”
For the analyst, other key positives for the stock include its slowing pace of expense growth and its large user base (around 2.1 billion) that offers FB a significant opportunity to monetize and take advantage of an advertising market worth $700 billion globally.
Sebastian expects that, along with Alphabet (GOOGL), FB stands to benefit the most from the shift of advertising from offline to online. What’s The analyst has projected FB’s revenues to reach approximately $130 billion this year.
Other analysts on the Street, however, are cautiously optimistic about the stock, with a Moderate Buy consensus rating based on 26 Buys, 10 Holds, and two Sells. The average Meta Platforms stock forecast is $288.76, implying an upside potential of 35.5% from current levels.
Pinterest (NYSE: PINS)
Shares of Pinterest have been on an upward swing since the social media company reported Q1 results and are up 12.5% in the past five days. While Pinterest’s revenues and earnings per share both beat Street expectations in Q1, it is the user engagement that has Wall Street analysts worried.
The company admitted on its Q1 earnings call that it was finding it difficult to keep its users engaged, which was reflected in its global monthly active user (MAUs) base, down 9% year-over-year to 433 million.
PINS is trying to increase this user engagement by improving its support for advertisers, enhancing its shopper experience by increasing shopping capabilities on its platform, and expanding internationally.
However, Monnness Crespi Hardt analyst Brian White expects that these initiatives will continue to be “overshadowed for the foreseeable future.”
This is also reflected in PINS Q2 outlook as it expects revenues to grow 11% year-over-year. The company’s management pointed out on its Q1 earnings call that “the macroenvironment remains challenging, including supply chain issues and inflation exacerbated by the conflict in Europe. It’s unclear how long these conditions will persist.”
PINS’ management also stated that it continues to monitor “the impact of higher CPAs [cost per action when it comes to advertising on its platform].”
Considering this scenario, analyst White lowered his estimates for the stock and remained sidelined with a Hold rating on the stock.
However, the rest of the analysts on Wall Street are cautiously optimistic about the stock, with a Moderate Buy consensus rating based on seven Buys and 17 Holds. The average Pinterest stock forecast is $30.57, implying upside potential of 30.9% from current levels.
Bottom Line
From the above list, it is evident that social media stocks will continue to face macroeconomic and geopolitical turmoil going into Q2. It remains to be seen how these social media companies navigate this turbulent environment.
While analysts are cautiously optimistic about PINS and FB, they are more bullish on SNAP. Based on the upside potential over the next 12 months, SNAP seems to be a better Buy.
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