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Investors Business Daily

Battle For Gen Z: Facebook Takes On Snap, Pinterest, TikTok

Meta Platforms, Pinterest and Snap have been talking up their advantages to investors in attracting Gen Z users. And Wall Street is watching the potential impact on Meta stock and shares of its social media rivals.

Meta recently published data highlighting its efforts to attract young adults to Facebook. Meanwhile, Pinterest says its user base is "aging down." And Snap is pitching Snapchat as the platform to reach the next generation. Founded by and often popularized by the millennial generation, the social media firms are each seeking an edge in attracting young adult users coveted by advertisers.

"No one wants to be seen as the social media platform for old people," Debra Aho Williamson, chief analyst of Sonata Insights, told IBD. "That perception is limiting and it makes advertisers less likely to want to advertise there."

Meta Stock: Facebook Struggles With Young Users

The race for the next generation of users is heating up as the U.S. nears a potential ban on teen-favorite social media app TikTok. Meanwhile, many Gen Zers are entering adulthood.

Young users are often "at a life stage where they're making big decisions about where to live, what job to pursue, and what products and services they want to buy," Williamson said. "That makes them an important target audience for advertisers."

But social networks are getting older themselves. Facebook just turned 20 in February, while its sister company Instagram is 14. Pinterest, meanwhile, is old enough to drive and Snapchat has entered its teen years.

These apps have had varying success in transitioning to a new generation of users.

Take Facebook, which has lost much of its cool-kid appeal. It is still easily the largest global social media platform, with over 3 billion users. But Facebook is now seen as the hangout spot for older generations, dubbed in a headline by The Atlantic as "Boomerbook."

About 67% of adults ages 18 to 29 used Facebook as of late last year, according to a Pew Research poll. That's down from 87% in 2014. Meanwhile, about 33% of teens use Facebook as of late last year, according to Pew, down from 71% in 2014.

Meta Stock: Focus On Young Adult Facebook Users

Facebook appears more focused on boosting its rep with young adult users, rather than teenagers. In a late May company blog post titled "The Future of Facebook," head of Facebook Vice President Tom Alison wrote that the app recently hit a three-year-high with 40 million active users between ages 18 and 29 in the U.S. and Canada.

Facebook has "made significant changes with young adults in mind," he said.

The age range highlighted by Facebook is notable, as regulators are scrutinizing social media's effect on teenagers. The U.S. Surgeon General on June 17 said Congress should require tobacco-like warning labels about social media's effect on the mental health of teen users. And dozens of states sued Meta late last year with allegations the company designed its products to "ensnare" young users. Meta responded at the time that it has invested heavily in solutions that protect young users.

Rather than for teens, Facebook is pitching itself as focused on young adults making "big transitions," as described by Alison. Facebook Marketplace has been particularly popular for those users, Alison says. The online market could allow users to track down a secondhand couch for a first apartment — or even an apartment itself.

Meanwhile, Meta's big spending on artificial intelligence — which weighed on Meta stock following the company's Q1 earnings report in April — also plays into Facebook's push for Gen Z. AI is powering better content recommendations on Facebook's main feed and Reels short-video product, Alison said. That could fuel the "social discovery" that Alison said is prioritized by Gen Z users.

Pinterest Says It Is 'Aging Down'

Facebook isn't the only social media platform looking for the fountain of youth. The user base for Pinterest is "aging down," Chief Executive Bill Ready told analysts on the company's April 30 earnings call.

Gen Z represents 40% of users on the digital pinboard platform and represents its fastest growing demographic, Ready added. He said they are coming to Pinterest for inspiration "without the pressures and toxicity" of other social media.

Snap Chief Executive Evan Spiegel, meanwhile, told analysts in late April that Snapchat has proved itself "a valuable partner for businesses that want to reach the next generation."

Race For Digital Ad Dollars

Pinterest and Snap are competing against Meta's social media empire for digital advertising dollars. The March-ending quarter was a positive one for all three companies. Both Snap and Pinterest posted sales growth above 20% for the first time since 2021. But Meta is significantly larger and still growing faster, with 27% year-over-year sales growth for Q1.

Yet the smaller players could find an advantage if they can prove more effective in reaching the younger users that advertisers covet.

Snapchat has maintained a strong base of Gen Z users, Sonata Insights' Williamson told IBD. But "the negative flip side is that Snapchat's user growth in the U.S. has been stagnant for several quarters, since it has essentially found all of the Gen Z users it can gain here," she said.

On the other hand, Pinterest is "underappreciated as a place for advertisers to reach a younger audience," Williamson said. Gen Zers heading into adulthood could turn to Pinterest for home-design inspiration, recipes and travel ideas. Pinterest is working to serve those users with more ads with products relevant to those searches.

Who Has The Lead With Young Users?

Even if Facebook isn't the cool kid on the block anymore, Meta's Instagram remains popular for young users. Just under 80% of Americans ages 18 through 29 used Instagram as of late last year, according to Pew Research data.

Snapchat and TikTok are used by 65% and 62% of Americans in that same age range, respectively. About 45% of young American adults used Pinterest, according to the poll.

But the ranking shifts when considered as a percentage of users. About half Snapchat's U.S. users are Gen Z as of last year, the highest of any platform, according to research firm eMarketer. Meanwhile, a third of Instagram's user base is Gen Z. The younger generations make up 17% of Facebook users, according to eMarketer.

TikTok Ban: An Opportunity For Meta Stock?

TikTok, which launched in the U.S. in 2018, has emerged as a major force in the battle for young users. About 45% of TikTok's American users are Gen Z, according to eMarketer.

But TikTok faces an uncertain future. A bill signed by President Joe Biden in late April would ban TikTok within a year unless the video service is sold by its China-based owner, ByteDance. ByteDance has vowed not to sell the app and has sued to block the law.

If TikTok is banned, some analysts expect users to shift their time to Facebook and Instagram. Both platforms host Meta's Reels short-video app, which similar to TikTok features short videos catered to user interests.

"Instagram and Facebook have the closest features to what users are used to on TikTok," Bernstein analyst Mark Shmulik told clients in a recent note. "A transition from TikTok to Reels is a journey many users have already undertaken, and it seems quite likely that more users will follow suit if forced."

Pinterest Ahead Of Meta Stock For Internet Content Group

Coming off a strong earnings reaction in April, Pinterest stock has momentum. Pinterest's best-possible 98 Composite rating ranks second behind Google parent company Alphabet in the Internet Content industry group tracked by IBD.

Meta stock ranks fifth with a Composite Rating of 98 out of 99, according to the IBD Stock Checkup tool. Shares have nearly recovered from a post-earnings sell-off.

Snap stock ranks eighth in the category with a Composite Rating of 93 out of 99.

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