If you compare the performance of Twitter Inc (NYSE:TWTR) over the past three months with that of Snap Inc (NYSE:SNAP), it’s a tale of two stocks in entirely different directions.
Twitter stock is up 12.9% over the past three months through June 6 while SNAP stock is down 14.4%. Snap’s IPO investors probably don’t feel too bad given its 44% first-day gain. Most of them have probably sold their shares to millennials who just can’t get enough of it.
Currently headed in different directions, the two social media platforms have a lot in common. Recently, I recommended investors that are open to a little risk might want to consider TWTR stock despite its obvious flaws. I’m not nearly as confident about owning SNAP.
Before I decide whether to stick with TWTR or jump ship to SNAP, however, I thought I’d examine some of the things the two companies share in common. By the end, you’ll have a pretty good idea where I stand.
Money Losers
I’ve never understood why companies go public when they’re not making money. Yes, the idea of striking while the iron is hot is financially enticing to the founders and their VC investors, but whether you’re a money manager or a regular Joe, the name of the game is earnings.
After all, a business is only a business if it makes money. Anything else is a charitable non-profit. In the trailing 12 months, Twitter’s operating loss was $348 million on $2.5 billion in revenue; Snap’s operating loss was $2.6 billion on $515 million in revenue.
Snap’s losses are considerably larger, but it only launched Snapchat in September 2011. Twitter was launched in July 2006 and is almost twice as old, so its losses should be much smaller. But if we go back to 2012, six years into Twitter’s existence, it had an operating loss of $77 million on $317 million in revenue. Not nearly as severe as Snap’s numbers after six years in business. However, Twitter went on to lose $2 billion over the next four years.
And both companies are having a difficult time monetizing their social media platforms. With Facebook Inc (NASDAQ:FB) doing such a good job monetizing its various platforms, it’s possible neither of them will ever take the ball away from Mark Zuckerberg and company.
Daily and Monthly Active Users
Again, an apple to apple comparison isn’t possible in this example because of the age difference between the two companies, but a look back in time gives us an idea.
Snap has 166 million daily active users (DAU) and average revenue per user (ARPU) of 90 cents. Twitter, based on estimates (it only reveals monthly active users), has 156 million DAUs and ARPU of $3.03.
The big difference between the two is the amount Snap’s generating from ad revenue. Twitter, according to Fool.com contributor Adam Levy, brought in $2.2 billion over the past four quarters, a figure Snap could hit as early as next year, which would move ARPU much higher and closer to Twitter.
Today, Twitter has 328 million in monthly active users. Levy suggests its DAU-to-MAU ratio in 2015 was 44%. If his 156 million estimate for DAUs is close, Twitter’s DAU-to-MAU ratio has increased to 48%, which is a good thing.
Go back to the end of 2012, MAUs were 185 million, an annual growth rate of 13.6% over the past four-and-a-half years. Using a DAU-to-MAU ratio of 44% (again, just a static estimate, not intended to be 100% accurate), it had 81 million DAUs, significantly lower than Snap.
But now, with Snap’s daily active user growth rate slowing with just seven million added in the latest quarter, Twitter might pass it.
Bottom Line on SNAP, TWTR Stock
Both of these companies have a lot in common today and when each went public. A lot more in common than Facebook, the social media leader. Both of these companies have platforms allowing people and brands to tell a story. From an earnings perspective, they both leave a lot to be desired.
However, I have to stay with Twitter stock for two reasons. First, I believe Twitter’s social media platform is more useful to society (despite Donald Trump) than Snapchat will ever be. That doesn’t make me right. It’s just an opinion.
Secondly, and more importantly, I believe Twitter has a much better chance of being acquired than Snap does, meaning its floor price is a lot more certain. That said, you have to be able to accept risk when owning either of these stocks because money-losing companies are always volatile rides.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
