Jack Dorsey sits at the helm of two publicly listed tech companies with a combined market cap of almost $25 billion — Twitter Inc (NYSE:TWTR) and Square Inc (NYSE:SQ) — but until recently, one clearly has been the superior investment. SQ stock is up more than 50% since its 2015 IPO, while TWTR stock is off by nearly the same amount since going public in 2013.
However, over the past month or so, Twitter is building the bigger head of steam thanks to promising user growth data in its most recent earnings report. TWTR shares are up 30% in the past month, roughly double SQ despite its own solid report.
The question is: Where now? Do you trust this revival in Twitter stock, or do you ride the more consistent hand with SQ?
A Look at TWTR Stock
Last year, after concerning advertising revenue growth trends and perhaps more importantly, user growth trouble, Twitter unsuccessfully shopped for a buyer and instead, had to lay off 9% of its staff. It also ended efforts to continue building its video platform play, Vine.
After none of the bids materialized into a formal offer, TWTR stock tumbled approximately 40% until they released earnings.
After reporting first-quarter earnings and user growth data, the market gave Twitter shares a respite from a downward slide. The piece of data that the market responded to was a 6% worldwide growth in monthly active users (MAUs). Out of 328 million MAUs, the U.S. accounts for just 70 million, so roughly 4 in 5 users are international.
While this quarterly growth is a welcome change from the anemic user growth from the past few quarters, the real question is whether this can be sustained going forward and the amount of confidence advertisers have in the company’s ability to accomplish this.
Advertisers are much more likely to turn to Alphabet Inc (NASDAQ:GOOGL) and Facebook Inc (NASDAQ:FB), and are even giving Snap Inc (NYSE:SNAP) a chance thanks to better consumer engagement and user figures.
Twitter faces similar headwinds as SNAP, but investors responded positively to the user base trajectory, which I keep hammering home since that’s a key KPI for social media and tech growth companies like Netflix, Inc. (NASDAQ:NFLX).
The other numbers weren’t so great. Revenues were off 24% sequentially, and 8% year-over-year. That included an 11% drop in advertising revenue. These ad dollars are backward-looking, of course, so we won’t know until next quarter just how much oomph the additional user growth will provide to ad sales.
I’m skeptical of a meaningful improvement, however.
A Look at SQ Stock
While Twitter faces a host of woes, Square seems to have far more tailwinds than headwinds. From very positive cohort numbers to EBITDA improvement to the intriguing future of Square Capital to the growth of the broader mobile payments industry, SQ stock holds much more promise of creating long-term shareholder value.
Gross transaction volume continues to grow by high double digits – we’re talking in the 40% range, with good retention rates and new customer growth (net). Square has been gaining traction with larger sellers as well; larger transaction volumes means even with a lower fee structure, Square will earn more in absolute terms.
And with Square’s additional analytics services that help business owners make sense of customer data, there is a virtuous cycle of customer satisfaction, higher retention and a higher top line — after all, the more robust services don’t come free.