Meta vs. Reddit: Which Is the Better Social Media Stock?

What a year 2024 has been for the social media industry. TikTok faces a potential U.S. ban. Reddit (NYSE: RDDT) executed an initial public offering (IPO) . Facebook parent Meta Platforms (NASDAQ: META) saw its stock price nearly double from a 52-week low of $274.38 last August to a high of $542.81 in July.

Meta's performance illustrates social media stocks' potential to deliver spectacular returns. But given the stock's recent run-up, is it too late to invest in Meta? Perhaps Reddit is the better choice since its life as a public company is just getting started.

Let's take a look at Meta and Reddit to answer these questions and help you assess which is the better long-term investment in the social media space.

Reasons to invest in Meta

Meta's outsized share price gains were due to several factors. For starters, its revenue rose an outstanding 27% year over year to $36.5 billion. This helped the firm produce strong free cash flow (FCF) of $12.5 billion, a substantial jump up from the prior year's $6.9 billion. Meta's FCF growth enabled it to initiate the first dividend in its history, which pays $0.50 per share on a quarterly basis.

The company also took steps last year to reduce costs, which helped it kick off 2024 with first-quarter net income of $12.4 billion, a 117% increase year over year. Thanks to a combination of cost cuts and revenue growth, Meta's earnings per share (EPS) underwent an impressive upswing over the past few quarters.

Data by YCharts . EPS = earnings per share. TTM = trailing 12 months.

In Q1, Meta's diluted EPS rose 114% year over year to $4.71. The company's stellar results were due to growth in its advertising business, which hit $35.6 billion in Q1 sales compared to $28.1 billion in 2023.

Because Meta's global digital advertising market share is second only to Alphabet , the social media titan is well-positioned to benefit from the tailwind of industry growth. Digital ad spending is projected to expand by double digits year over year in 2024 and over the next few years.

The case for Reddit

Like Meta, Reddit delivered magnificent Q1 results in its initial earnings report after its IPO in March. Revenue hit $243 million, a 48% year-over-year increase. Its user growth enabled Reddit's strong Q1 sales performance. Although the social media giant was founded in 2005, it's still growing users at a healthy clip. The company achieved record consumer traffic of 82.7 million in Q1.

Reddit generates the bulk of its income from advertising. Digital ads represented $222.7 million of the firm's $243 million in Q1 sales. Its rising revenue helped Reddit reach Q1 FCF of $29.2 million, up from $3.7 million in the prior year. The company also achieved an excellent Q1 gross margin of 88.6%, an increase from 2023's 83.6%.

However, despite its superb Q1 sales, Reddit isn't profitable. It suffered a net loss of $575.1 million in Q1, which is significantly larger than its $60.9 million net loss in 2023. This increase was due to the costs related to its IPO.

Deciding between Meta and Reddit

The incredible Q1 results delivered by Meta and Reddit make both social media stocks appealing investments. So, here are some other factors to consider.

One is valuation. Because Reddit isn't profitable, the price-to-earnings (P/E) ratio commonly used for stock valuation isn't applicable. So, let's compare each company's forward price-to-sales (P/S) ratio, which uses sales forecasts in the calculation. Currently, Reddit's forward P/S ratio is higher, suggesting Meta is the better value.

Data by YCharts . PS = price to sales.

Now, here's what Wall Street analysts think. Regarding Meta stock, their current consensus is an overweight rating with a median share price target of $540. This indicates a belief that Meta stock can see additional gains, suggesting it's not too late to buy shares.

In fact, Meta expects its excellent Q1 performance to extend into the second quarter. The firm estimates Q2 revenue to reach at least $36.5 billion versus $32 billion in 2023. Meta's ongoing sales growth is another indicator that it's not too late to invest in its stock.

Wall Street's consensus rating for Reddit is also overweight, while the median price target is $65. This suggests that some Wall Street analysts are dubious about the upside potential for Reddit's stock, given its share price at the time of this writing.

Taking into account these factors as well as the financial performance of both companies, the better long-term investment between these two social media stocks is Meta. And Meta's dividend adds to your total return as you hold on to shares over the long run.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Robert Izquierdo has positions in Alphabet and Meta Platforms. The Motley Fool has positions in and recommends Alphabet and Meta Platforms. The Motley Fool has a disclosure policy .