In our increasingly interconnected and globalized society, the demand for the internet shows no signs of abating due to the growing number of active users. A whopping 39% of online users in the United States admit to feeling the addictive pull of the digital rabbit hole that is social media.
Given the long-term growth prospects of the internet industry, it could be wise to keep an eye on fundamentally strong social media stocks, Meta Platforms, Inc. (META), Pinterest, Inc. (PINS), and Etsy, Inc. (ETSY) this quarter.
Before diving deeper into the fundamentals of these stocks, let’s discuss the current trends and evolving user behaviors shaping the social media landscape.
In the digital landscape of 2023, the realm of social media has witnessed an astounding surge in popularity. Social media users worldwide have swelled to a record 4.9 billion people actively engaging on various platforms. Furthermore, the projections suggest that this figure is expected to jump to approximately 5.85 billion users by 2027.
Both brevity and authenticity are winning the day on social media, with short-form videos capturing the attention of 66% of consumers. As users seek alternatives to the chaos on Twitter, new platforms are emerging that facilitate public conversations. The influence of Gen Z’s demand for engaging content is spurring the rapid rise of social media.
With more and more businesses recognizing the potential of social media platforms, precise targeting options, and the ability to measure campaign effectiveness, the social platforms’ future ad revenue growth is on the rise. As companies throw their hats in the ring, ad spending in the social media advertising market is projected to reach $247 billion in 2027, growing at a CAGR of 4.5%.
Given this backdrop, let’s take a closer look at the fundamentals of the featured stocks.
Meta Platforms, Inc. (META)
META develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments: Family of Apps and Reality Labs.
On July 18, META introduced Llama 2, an open-source language model with Microsoft Corporation (MSFT) as its preferred partner, which garnered widespread support from tech, academia, and policy communities. Embracing open innovation, the move positions the company for significant advancements and a stronger foothold in the AI market.
On July 5, the company launched Threads, built by the Instagram team, which has profoundly impacted the users. It provides a platform for users to share text updates and engage in public conversations, enhancing META’s presence in the social media landscape and expanding its reach to a broader audience.
Moreover, META eagerly anticipates the upcoming launch of Meta Quest 3, a state-of-the-art virtual and mixed-reality headset featuring higher resolution, improved performance, breakthrough Meta Reality technology, and enhanced comfort. Such remarkable innovations are expected to drive increased sales and profitability for the company.
For the second quarter that ended June 30, 2023, META’s total revenue increased 11% year-over-year to $31.99 billion, while its income from operations grew 12.4% from the year-ago value to $9.39 billion.
META’s net income and EPS amounted to $7.79 billion and $2.98, representing increases of 16.5% and 21.1%, respectively, from the prior year’s quarter. Also, its free cash flow stood at $10.95 billion, up 146.2% year-over-year.
As of March 31, 2023, the company’s cash and cash equivalents came in at $28.78 billion, increasing 96.1% compared to $14.68 billion for the period ended December 31, 2022.
The consensus revenue estimate of $33.34 billion for the fiscal third quarter (ending September 2023) represents a 20.3% increase year-over-year. The consensus EPS estimate of $3.55 for the current quarter indicates a 116.4% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.
META’s trailing 12-month EBITDA margin of 37.27% is 101.5% higher than the industry average of 18.49%. Also, its trailing-12-month ROCE, ROTC, and ROTA of 17.36%, 14.04%, and 10.91% compare to the respective industry averages of 3.29%, 3.49%, and 1.55%.
Shares of META have surged 162.2% over the past nine months and 144.5% year-to-date to close the last trading session at $294.24.
META’s POWR Ratings reflect this promising outlook. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Quality and a B for Growth and Sentiment. In the 59-stock Internet industry, it is ranked #7. Click here to see the other ratings of META for Value, Momentum, and Stability.
Pinterest, Inc. (PINS)
PINS operates as a visual discovery engine in the United States and internationally. The company’s engine allows people to find ideas, provides videos, products, and idea pins, and offers organizing and planning tools.
On June 15, Westbrook Inc., an entertainment and media company, announced a partnership with PINS to create branded content for Halloween and the winter holiday season. The media company will produce branded content across Pinterest, including the platform’s new Pinterest Premiere Spotlight ad solution, to connect with prospective shoppers in an engaging format.
Further, it would connect Pinners with a breadth of ideas this Halloween and holiday that would turn their vision into reality. Such collaborations could be beneficial for PINS.
For the fiscal second quarter that ended June 30, 2023, PINS’ revenues increased 6.3% year-over-year to $708.03 million. The company’s non-GAAP net income and non-GAAP net income per share amounted to $142.09 million and $0.21, representing increases of 83.7% and 90.9% year-over-year, respectively. Also, its adjusted EBITDA stood at $107.02 million, up 16.3% from the year-ago quarter.
Street expects PINS’ revenue for the third quarter (ending September 30, 2023) to increase 8.3% year-over-year to $741.19 million. Its EPS for the ongoing quarter is projected to reach $0.20, registering a 79.3% year-over-year growth. Moreover, it surpassed the EPS estimates in each of the trailing four quarters.
PINS’ trailing-12-month gross profit and levered FCF margins of 75.48% and 14.32% are 52.9% and 78.9% higher than its industry average of 49.37% and 8.01%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.83x is 72.5% higher than its industry average of 0.48x.
Over the past year, the stock has gained 32.7% to close the last trading session at $27.29.
PINS’ strong fundamentals are reflected in its POWR Ratings. It has an A grade for Quality and a B for Sentiment in our proprietary rating system. Within the same industry, it is ranked #20.
Click here to see the additional ratings for PINS (Growth, Value, Momentum, and Stability).
Etsy, Inc. (ETSY)
ETSY operates two-sided online marketplaces connecting people, buyers, and sellers in the United States, the United Kingdom, Germany, Canada, Australia, France, and India. The company operates through four segments: Etsy.com; Reverb; Depop; and Elo7.
During the fiscal second quarter, which ended June 30, 2023, ETSY’s revenue increased 7.5% year-over-year to $628.88 million. Its gross profit grew 6.4% from the year-ago value to $440.24 million. The company’s net income amounted to $61.92 million and $0.45 per share, while its adjusted EBITDA stood at $166.24 million, up 2.2% year-over-year.
Analysts expect ETSY’s revenue for the current quarter (ending September 30, 2023) to increase 6.4% year-over-year to $632.21 million, while its EPS is expected to be $0.97 in the same period. Additionally, it topped the EPS and revenue estimates in each of the trailing four quarters, which is promising.
ETSY’s trailing 12-month gross profit and EBITDA margins of 70.64% and 16.17% are 99.9% and 50.2% higher than its industry average of 35.32% and 10.77%, respectively. Likewise, its trailing 12-month levered FCF margin of 21.53% compares to the industry average of 4.86%.
The stock has lost 17% over the past three months to close the last trading session at $73.08.
ETSY’s POWR Ratings reflect a sound outlook, with an A grade for Quality. Out of 59 stocks in the same industry, it is ranked #35. To see the other ratings of ETSY for Growth, Value, Momentum, Stability, and Sentiment, click here.
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META shares were trading at $289.38 per share on Thursday afternoon, down $4.86 (-1.65%). Year-to-date, META has gained 140.47%, versus a 15.88% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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