I know I am really going out on limb here, but it’s safe to say at this point that social media providers Twitter Inc (NASDAQ:TWTR) is no Facebook Inc (NASDAQ:FB). TWTR stock and FB are on stunningly different, divergent paths. Facebook is the clear winner by nearly every growth and profit yardstick you can come up with.
Facebook recently reported quarterly sales of $8 billion that jumped 49% from the previous year. Profits nearly doubled to $3 billion, or $1.04 per diluted share.
Shares outstanding rose only slightly and share-based compensation (an explicit employee cost that most tech companies try to ignore) was only $867 million. Free cash flow hit $3.8 billion.
Based off quarterly sales, TWTR stock is less than 7% of Facebook, but saw sales fall 8% to $548 million. Reported net loss fell, but was still a loss of $61.6 million. Shares outstanding rose only slightly. Free cash flow was quite respectable at $163.6 million (almost 23 cents per diluted share), but share-based compensation was $117 million of total free cash flow to suggest its operations are barely generating any cash.
The comparisons can stop there, because these are completely different animals. Facebook right now is easily deserving of the praise it receives for its business success — “another surge” in revenue, “impressive” audience growth, and that it “crushed analyst estimates” for the quarter. Monthly active users (MAU) hit 1.65 billion and include Facebook’s namesake social media site, as well as Instagram.
Twitter Stock: Financials
Twitter reported modest 3% MAU growth to 328 million, most of which are actually from outside of the United States. Daily active users actually ticked up 14% — a statistic it touted at the very start of its first quarter press release. I had to dig into the 10-Q financial filing for any detail of the three main financial statements (earnings, balance sheet and cash flow), though the letter to shareholders also included them.
Despite the unimpressive quarterly results, Twitter shares rallied strongly following its earnings report. The loss was less than analysts expected, and sales were higher than what they were calling for. However, Twitter lowered its profit guidance for the second quarter.
Twitter continues to work on ways to boost audience engagement, and hopefully sales and profits. Its shareholder letter detailed wanting to build a “better, more cohesive user experience that is driving accelerating audience growth,” and of course turn that into revenue growth. But we are all waiting for that to happen.
Like Facebook, Twitter is looking into increasing video feeds, including live streaming video. Alphabet Inc’s (NASDAQ:GOOG, NASDAQ:GOOGL) YouTube has experienced fantastic success with recorded videos, which has also resonated with advertisers. Twitter plans to offer live streams of NFL Thursday night football games. Let’s see if it works.
Despite the active daily use of celebrities, politicians and even the President of the United States, Twitter just can’t seem to get the momentum going with advertisers. Advertising is extremely important for Twitter — it accounts for about 90% of sales.
Personally, I am a huge fan of Twitter. I find it part of my daily reading and use it as an inventory for the articles I discover both online and in print. It’s much more convenient to tweet my reading than cut and paste a physical article and try to keep track of it. Most news junkies I know enjoy what TWTR has to offer.
Looking at a larger sample size, a recent survey of social media usage detailed that only 24% of Americans (the ones that go online) use Twitter. Nearly 80% use Facebook, 32% use Instagram and 31% use Pinterest. Meanwhile, 29% use LinkedIn, which Microsoft Corporation (NASDAQ:MSFT) acquired recently.
Usage among the “highly educated” appears to be a little higher on TWTR: 29% of internet users who also have a college degree use Twitter, while only 20% without college degrees do. And TWTR skews younger — 36% of adults aged 18 to 29 use the site. But again, Facebook usage is surging pretty much across the board.
TWTR Stock: The Waiting Game
The market for digital advertising is growing very briskly. It is projected to grow 16% this year and hit $83 billion. Google dominates the market and is estimated to own 40.7% of it this year. Facebook is the next largest at 19.7% (Instagram accounts for 20% of that), but growing about twice as fast as Facebook. Snapchat is another fast grower, while Yahoo! Inc. (NASDAQ:YHOO) and Twitter are only very minor players.
TWTR stock investors are probably best served waiting on the sidelines before investing in the stock. There is just no visibility on growth in either sales or earnings. Analysts collectively expect sales to fall 6% this year to $2.4 billion and an earnings loss of $0.30 per share for Twitter stock. Sales will be lucky to grow in 2018, and another earnings loss is currently projected.
Of course TWTR stock could jump on any speculation that growth trends are improving. There are still many reasons to think the company could get its act together and start posting sales growth reminiscent of its earlier start-up days. But at this point, Facebook and Alphabet have their acts together with both sales growing and cash flow gushing in. They can also be valued on a profit basis, and though they aren’t cheap, are reasonable values given the growth trends.
As of this writing, Ryan Fuhrmann owned shares of Facebook and Google.