Social media stocks Meta, Pinterest, and Snapchat enjoyed strong gains in 2023 as the broader ad market stabilized and fundamentals improved. Social media ad spend is expected to remain robust in 2024, with one of the fastest projected growth rates in the ad industry at +13.8% to reach $227.2 billion, less than 1% shy of search ad spend.
This upbeat ad market forecast leaves investors questioning if more upside awaits social media stocks in 2024. In this analysis, we dig into one metric that shows Meta’s leadership in the space, some improving trends at Pinterest, and how Snapchat has weaker ARPU than its peers.
TURKEY – 2022/07/28: In this photo illustration, the app icons of Facebook, Messenger, Instagram, … [+]
Meta’s strength in ARPU and cash flow generation stands out here, setting it clearly apart from Snapchat and Pinterest – it can maintain spending 30% of gross profit on R&D while driving significant cash flow growth.
Ad Pricing Recovers While Impressions Remain Strong
Ad impression growth remains strong for Meta and Pinterest, while ad pricing is in the initial stages of a recovery after declining for multiple quarters as companies optimized budgets through much of 2022 and early 2023.
Meta: Ad Impressions Remain Strong
Meta reported 31% YoY growth in ad impressions in Q3, a second straight quarter with growth above 30% YoY after a string of growth in the teens in 2022. Impression growth was driven by APAC and Rest of World, Facebook’s two largest and fastest growing geographies for daily active users. DAUs rose ~6% higher in both regions to top 1.57 billion combined, equivalent to 75.5% of Facebook’s global DAUs.
Ad pricing declined (6%) in Q3, adding further confirmation that pricing bottomed in Q4 2022. The decline was driven by that strong growth in impressions in APAC and Rest of World, as the two are Facebook’s lowest monetizing regions with ARPU less than half of global ARPU. Meta said that “overall engagement on Facebook and Instagram remains strong,” and Reels “continues to grow and drive incremental engagement.”
What investors should watch for is if improved ad targeting from AI features can help drive ad pricing back to growth, supported by a favorable spending backdrop and continuing strength in ad impressions globally.
Meta reported 31% YoY growth in ad impressions in Q3, a second straight quarter with growth above … [+]
Pinterest: Pricing Remains Depressed
Pinterest reported similarly strong trends in ad impression growth while pricing also remained depressed. Pinterest said in its Q3 earnings call that it has “been able to drive increases in both total impressions and in ad loads simultaneously,” thus driving impression growth of 26% YoY. This marked a significant 10 percentage point increase from the 16% impression growth from Q2 and Q1.
Pricing declined (12%) in Q3, an 8 percentage point sequential improvement from a (20%) decline in Q2. Pinterest chalked up the improvement to “industry-wide demand stabilization” and its “AI-fueled ad stack efficiencies.” However, a double-digit decline for ad pricing is weighing on strong impressions growth, as Pinterest has struggled to meaningfully improve ARPU this year.
Snapchat: Growth Still in Single Digits
While its peers are reporting high double-digit impressions growth, Snapchat’s growth remains in the single-digits, reporting just 7% YoY growth in Q3. This marked a slight 2 percentage point acceleration over Q2, though it remained below the growth levels seen throughout 2022, a stark contrast to both Meta and Pinterest who have witnessed double-digit percentage point accelerations.
Pricing is nearing an inflection, recovering to just a (5%) decline in Q3 compared to an (18%) decline in Q1 as impressions growth continues to outpace demand.
While its peers are reporting high double-digit impressions growth, Snapchat’s growth remains in the … [+]
Meta & Pinterest ARPU Accelerating
Meta and Pinterest both are demonstrating accelerating ARPU in core geographies, whereas Snapchat is struggling to improve monetization of its user base, with ARPU in core geographies declining. All three displayed solid double-digit ARPU growth in Europe, a dominant factor in global ARPU growth in Q3.
· Meta’s global ARPU increased 19% YoY to $11.23, aided by 34% YoY growth in Europe to $19.04. US & Canada ARPU rose 14% YoY to $56.11, marking a solid acceleration from…
Read More: One Metric Shows Meta’s Clear Leadership