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DJ Snap, Pinterest Battle for Investors' Likes -- Heard on the Street

· 02/05/2021 07:30
By Laura Forman

Snapchat parent Snap Inc. and Pinterest have broadened their influence significantly over the past year, but only one can be 2021's top socialite.

Both companies reported blockbuster fourth quarters on Thursday afternoon. Sales for Snap and Pinterest grew 62% and 76%, respectively, year-over-year, as advertisers saw particular value in investing in platforms relatively insulated from last year's election controversy. That was well ahead of the 33% pace that Facebook announced last week, though from a much smaller base.

Pinterest and Snap have had blazing share price returns over the past 12 months, with both more than tripling, eclipsing Facebook and Twitter. Their outperformance reflects the market's acknowledgment of the significant revenue potential coming in fields such as e-commerce through augmented reality and video -- big pandemic winners. Both companies, for example, are leveraging the ability for users to "try on" customers' products through AR technology. Those users are increasingly coming to both platforms with buying intent.

But that might be where the similarities end. As far as near-term risks go, Snap seems more exposed. Its Chief Financial Officer Derek Andersen noted advertising declines in January after the deadly riot at the U.S. Capitol. (Pinterest didn't.) He also noted the potential for decreased ad demand based on coming iOS changes that Facebook has also flagged. Snap's updates spooked investors, driving its shares down more than 7% after hours even as Pinterest's moved higher.

Going forward, advertisers certainly have more to consider than political and platform uncertainty. Snap and Pinterest have very different user bases, owning their respective niches while working to expand them. Snap continues to report reaching 90% of 13- to 24-year-olds and 75% of 13- to 34 year-olds in the U.S., noting Thursday that its sway among that demographic in many of its established markets continues to grow. Chief Executive Evan Spiegel also cited a 25% increase in viewership on its Discover platform among users over 35. Meanwhile, Pinterest has long said that it reaches most U.S. moms and that it has more recently reported making progress with younger users and men.

Size, of course, also matters. Because Snap reports daily active users and Pinterest reports users monthly, comparisons are imperfect. But Snap does appear to be further along in its monetization efforts, reporting average revenue per user of $3.44 to Pinterest's $1.57 in the fourth quarter. Pinterest did at least increase that measure at a slightly faster clip.

Some of the discrepancy could have to do with Snap's strength in direct-response ads, which have been especially appealing to advertisers throughout the pandemic because they encourage immediate user conversion. But a big part might also come down to capitalizing on international users, where Snap has a lead. For Pinterest, though, that actually could be a longer-term positive: Non-U.S. users now make up 79% of Pinterest's overall user base, suggesting tremendous upside potential as its monetization strategies evolve. The company said on its conference call Thursday afternoon that international monetization is a big priority, citing the Latin America and Asia-Pacific regions.

Both Snap and Pinterest came into Thursday's results announcements trading at record valuations, but Snap's shares have outperformed Pinterest's more recently as investors give Snap credit for its 2021 pipeline initiatives.

That appears to have been shortsighted. Snap's first-quarter guidance of 58% year-over-year revenue growth seemed impressive given the brief ad hit it took in January, but it paled in comparison to Pinterest's forecast for more than 70% growth on the same basis.

In social media, it pays to be above the drama.

Write to Laura Forman at laura.forman@wsj.com

(END) Dow Jones Newswires

February 05, 2021 07:30 ET (12:30 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.