Analysts at JP Morgan Chase, which initiated coverage of Twitter (TWTR) with a neutral rating today, thinks the social media company is going to be a lot more competitive with Facebook (FB) in the coming months and years.
The signs are already there:
Facebook has added Twitter-esque news feed ads and enable celebrity following, added hashtags on FB and Instagram, and introduced video (via Instagram).
Facebook is now trying to copy Twitter’s Amplify ad program to make use of users’ real-time data and updates on the site.
In the meantime, Twitter is trying to focus on growth and eating into Facebook’s audience: TWTR stock depends on it.
Analyst Doug Anmuth told clients that Twitter has several growth drivers ahead and its model should provide highly scalable over time, but the stock looks fairly valued with its market cap approaching US$30-billion.
“We expect a boost in users and engagement in the near term driven by the recent IPO, and Twitter is now more focused on making it easier for new users to sign up for and engage with the platform, but it is critical that strong user growth continues,” Mr. Anmuth said, projecting the platform will surpass 500 million monthly active users (MAUs) in 2018.
But just which one will come out on top?
Anmuth said that because of TWTR’s real-time driven newsy brand, FB has the overall advantage (which is how many FB stock investors see it). At the same time, he noted that while Twitter MAUs are some 20% that of Facebook, its user base could bump up to 40% of Facebook’s levels.
Also consider what analysts are saying about TWTR and monetization — a sticky wicket that FB has already had to surmount.
He expects Twitter’s monetization will be driven by a combination of growth in users, engagement (timeline views per user), and revenue per 1,000 timeline views.
After its more than 50% gain since its IPO offering of $26, the stock currently trades at 27.8x 2014 forecasted EV/revenue and 18.9x for 2015.
The response the markets have to both TWTR and FB in the next few months are going to depend in part on the success of their ad models — and with fickle users already used to dodging ads, the real fight seems yet to come.
