2 Beaten-Down Stocks to Buy Right Now

Pinterest (PINS) and Snap (SNAP) have a lot in common. They are among the most prominent social media companies in the world. Both performed well in 2023. And both started 2024 on a sour note.

As things stand, Pinterest is down by 3% year to date, while Snap has dropped by 36%. Despite their poor performances so far this year, there is a lot to like about both stocks.

1. Pinterest
Pinterest focuses on image discovery and browsing. The social media platform’s visual flavor sets it apart from many of its competitors. No one goes to Pinterest to debate controversial topics. People visit it to get inspiration and fuel their creative juices. That’s all well and good, but how is Pinterest performing? The market was disappointed with the company’s fourth-quarter earnings report since it missed analysts’ revenue estimates and failed to deliver encouraging guidance.

Still, Pinterest’s Q4 results weren’t all bad. It reached 498 million monthly active users, 11% higher than the year-ago period. And for the year, revenue increased by 9% to $3.1 billion, while average revenue per user (ARPU) increased by 1% to $6.44. Growth in ARPU especially came from its Europe and “rest of the world” segments, which is a good sign. Only about 20% of Pinterest’s users are in the U.S. and Canada.

However, while only 97 million of its 498 million MAUs were in the U.S. and Canada as of the end of 2023, its ARPU in that region is much higher. Pinterest could increase its revenue by fine-tuning its business and increasing its ARPU outside North America, even without gaining new users. Pinterest has a plan to that effect. The company recently announced a partnership with Alphabet‘s Google — the leading search engine in the world — that will allow it to ramp up monetization in some regions.

As Pinterest CEO Bill Ready said during the company’s fourth-quarter earnings conference call: “This partnership will focus on monetizing several of our currently unmonetized international markets by enabling ads to be served on Pinterest via Google’s Ad Manager.” Pinterest’s growing user base already makes it an increasingly attractive target for advertisers. This new move should open up more opportunities for the company.

Further, Pinterest still plans to transform its platform into an e-commerce hub. Many social media websites are on this trail, but Pinterest’s advantage is its visual focus, which can help fuel people’s desires. Between Pinterest’s increasing MAUs, attempts to accelerate monetization in regions where it has lagged, and its e-commerce opportunities, the stock could deliver outsize returns in the next five years and beyond.

Investors shouldn’t let the recent sell-off discourage them from considering this stock.

2. Snap
Snap, the parent company of Snapchat, has been seesawing since its 2017 IPO, switching from being a market laggard to a bit of a market darling, then back. Right now, Wall Street seems somewhat bearish on the stock: Snap’s fourth-quarter results, especially on the top line, were a disappointment.

For 2023, Snap’s revenue remained flat at $4.6 billion. Though the company’s daily active users (DAUs) increased by 10% year over year to 414 million, its ARPU declined in every quarter last year. It’s true that the advertising market hasn’t been at its best in the past year and a half, but many companies that rely on advertising have performed relatively well. It’s hard to attribute Snap’s declining ARPU to this factor alone.

It’s also challenging to see a consistent trend. Snap’s ARPU declined in North America in the first three quarters of 2023 and increased in the fourth. ARPU in the rest of the world (not including Europe) increased in the first three quarters but declined in the fourth.

Whatever the culprit for the tech company’s disappointing ARPU, though, management has a plan. It has been looking to improve and optimize direct response advertising on the platform. Direct response ads allow businesses to create highly customized campaigns and measure their results faster and more accurately. Snap has been investing in machine learning algorithms to fine-tune its direct response advertising segment.

These efforts should help boost advertising revenue, overall revenue, and ARPU, especially as engagement on the platform continues to improve. Here is an example: The total amount of time spent by its users watching Spotlight content increased by 175% year over year in the fourth quarter. Elsewhere, the company is diversifying its revenue by ramping up its Snapchat+ subscription feature that now boasts more than 7 million users — it was initially launched in mid-2022.

This could become a solid source of recurring revenue for the company. Snap’s stock may be down now, but the company’s ecosystem is too valuable to ignore. And it still boasts significant growth potential to attract more users. Snap’s penetration, even in North America, its most advanced market, remains below 25%. Younger generations who grew up with social media should help boost the company’s user base over the long run, and with it, the opportunities available to Snap.

That’s why the company’s shares are worth buying, in my view, especially at under $11 apiece.

— Prosper Junior Bakiny

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