U.S. Markets open in 2 hrs 42 mins

Ignore Snap, Inc.: Here Are 2 Better Stocks

Chris Neiger, The Motley Fool

Snap, Inc. (NYSE: SNAP) has received a lot of attention from investors because of its appeal to the millennial generation and its seemingly unique style of creating social media stories. But Snap has suffered a few setbacks since its IPO in mid-2017, and that's left investors questioning the long-term potential of the company.

For example, Snap increased its daily active users to 178 million in the third quarter, but that number failed to meet the company's own expectations of nearly 182 million users. The company also had to write down $39.9 million in costs related to its unsold camera-enabled Spectacles glasses in the quarter, and Snap has already burned through 30% of its cash in just six months. Throw in the fact that Snap's shares have plummeted 38% since its IPO, and it becomes pretty clear why investors may be looking elsewhere to put their money.

If that's the case, then you should consider two of the world's top social media platforms: Facebook (NASDAQ: FB) and Weibo (NASDAQ: WB).

Person holding up a smartphone.

Image source: Getty Images.

The case for Weibo

Weibo is one of the largest social media platforms in China, with 376 million monthly active users (MAU) and 165 million daily active users (DAU). That's nearly 36 million more monthly active users than Twitter, just for reference.

Weibo's platform allows its users to share personal posts, read and watch content, and follow thought leaders and celebrities across China. The company was one of the first social media platforms in the country, and it's still growing. In the third quarter of 2017, the company's MAUs increased 27% year over year. 

Weibo's top and bottom lines are also trending in the right direction. Revenue jumped by 81%, and earnings skyrocketed by 215% in the third quarter. 

Much of the sales and earnings growth can be attributed the company's advertising platform, which was revamped last year to include new features that improve ad-targeting for users and real-time bidding for ad purchases. The company's CEO, Gaofei Wang, said on the most recent quarterly earnings call that the new platform and increases in China's mobile ad market helped the company experience a "meaningful increase in the number of our ad customers and robust ad revenue growth" in the quarter. Ad revenue was up 77% year over year and accounted for nearly 86% of the company's top line. 

For the fourth quarter, Weibo estimates its sales will be between $355 million and $365 million, which would represent an increase of 69% at the midpoint, compared to the year-ago quarter. Weibo's current user growth and its strong advertising platform is the perfect combination that should keep this China-based social media stock growing.

The case for Facebook

Facebook is the obvious choice for investors who want to tap into the the social media space, mainly because of the company's continued user growth and its ability to acquire smaller companies and expand into new segments.

In the third quarter of 2017, Facebook's sales jumped 47% year over year and net income jumped by 79%. That's impressive for a company the size of Facebook, which now boasts more than 2 billion users on the Facebook platform alone.

Facebook has successfully taken on Snap (which famously shunned a $3 billion buyout bid from Facebook in 2013) and has re-created its own version of Snapchat stories on both Facebook and Instagram. Instagram continues to be a shining star in Facebook's social app lineup with its 500 million monthly active users and 300 million daily active users for Instagram Stories. Some estimates put Instagram's total sales between $4 billion and $6 billion for the full-year 2017.

The company's management said that revenue growth is expected to slow in 2018 as Facebook spends more money to grow the company. Management expects total expenses to rise between 45% and 60% compared to 2017 levels, and Facebook CFO David Wehner said on the latest earnings call that:

[W]e are making sizable security investments in people and technology to strengthen our systems and prevent abuse. Secondly, we are investing aggressively in video content to support the Watch tab. Finally, we continue to invest in our long-term initiatives around augmented and virtual reality, AI and connectivity.

Even with the increased spending and a potential slowdown in revenue growth, Facebook is still a solid long-term investment. The company's more than 2 billion users, strong advertising platform, and continued investments in its other social media platforms like Instagram should keep the company at the forefront of social media.

More From The Motley Fool

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Facebook and Twitter. The Motley Fool recommends Weibo. The Motley Fool has a disclosure policy.