Most of the time, stocks within the same industry at least move in the same direction, even if not at the same pace. Social networking names Facebook (FB) and Twitter (TWTR), however, have proven to the exception to the norm … in spades.
Somehow, since the beginning of the year, FB stock has managed to advance about 40% while TWTR stock is down 20%; there’s no dismissing that kind of disparity as “just a little volatility.”
Amateur and expert observers alike will note that Facebook has been growing and will likely continue to grow earnings, while Twitter may never grow its way out of habitual losses. And, those assessments are fair.
The bigger philosophical question remains though — how can two companies that are seemingly so similar be so stunningly different when it comes to results?
For Example
It’s a debate that seems to be recycled once every three months, fueled by earnings news. This time around was no exception.
The numbers? Facebook earned 57 cents per share on $4.5 billion worth of revenue last quarter, versus expectations for a profit of 52 cents per share of FB stock and a top line of $4.37 billion. Both figures were considerably stronger than their year-ago comparables, when the company generated sales of $3.2 billion.
The highlight of the quarter for FB shareholders, however, had to be the number of regular users the site now draws. All told, an average of 1.55 billion people visit the Facebook site every month, and just a little more than 1 billion of those users visit the site every single day. That’s 14% better and 17% better, respectively, than the user numbers Facebook was boasting for the third quarter of 2014.
That’s in stark contrast to the results Twitter recently posted for its third quarter.
For the three-month stretch ending in September, Twitter boasted 320 million monthly users, 307 million of which were non-SMS users (the more meaningful figure). That total was up less than 7% from the year-ago total, and up just a blip from Q2’s total monthly users of 304 million; user growth has all but stagnated.
To its credit, revenue grew a whopping 58% on a year-over-year basis, to $569 million. And the non-GAAP profit of ten cents per share of TWTR stock handily topped estimates of five cents. Disappointing fourth-quarter revenue guidance of between $695 million and $710 million, however, was well short of the average of $740 million analysts had been expecting, suggesting the growth woes Twitter is dealing with could worsen before they get better.
Yeah, But Why?
The numbers are evidence — not an explanation. So what is it really that separates Twitter from Facebook, and by extension, TWTR stock from FB stock?
The opinions are varied, but a handful of the same ones seem to surface more than others.
Perhaps the most common premise is one voiced by now-ex-Twitter-CEO Ev Williams back in 2010, when he said, “Twitter is a real-time information network, not a social network.”
Ironically (well, maybe not ironically), Twitter is trying to tweak that idea, making the microblogging platform more social and familiar than it has been in the past.
That’s a tall order though. Facebook was built from the ground up as a way to facilitate the interconnectivity of individual users in multiple social circles.
Twitter, on the other hand, was built from the ground up to facilitate mass — and impersonal — communication. Now it’s trying to rebuild that feel, but the foundation runs deep.
It matters because the deeper engagement driven by personal connections bears more advertising fruit than the cold, impersonal ones Twitter serves up.
For perspective, on a global basis, Facebook generated $2.97 worth of revenue per user last quarter. Twitter doesn’t explicitly publish its average revenue per user, but last quarter’s top line of $569 million divided by 307 million monetizable users translates into per-user revenue of $1.85 … night and day in the world of web-ad sales.
Twitter CEO Jack Dorsey is working hard to close that gap, but as was noted, the platform itself may be holding the company back more than anything else.
A close second (and somewhat related) headwind, however, would have to be the fact that platform and interface itself simply doesn’t lend itself to facilitating e-commerce, while simultaneously not lending itself to web ads, sponsorships and the tightly focused demographic stratifications that have made Facebook such a success.
Giving credit where it’s due, Huffington Post‘s James Whitaker summed up the problem quite effectively in May, saying:
“Twitter is stupid.
I’m not talking about the product. I think the product is brilliant. The idea of being able to follow interesting people and interact with people who find you interesting is powerful. …
Twitter even manages to make people clever by forcing them to keep their communication down to 140 characters or less. Insights are crafted into witty little works of literary art and even when they aren’t insightful, well, at least they are short.
It mostly avoids being a shrine to ego like Facebook where the narcissistic gush boring details of their least significant activities. Tweeting requires more thought and tweets alternate between making me smile, reflect and scowl. Tweets make me think because writing them makes Tweeters think. There is wisdom in brevity and when the wisdom stops, unfollowing is silent and without stigma.
So it’s not the product I find stupid. Nor the company that makes it.
What is stupid is Twitter’s insistence on ignoring their value as an engine of commerce and mindlessly following the lead of Google and Facebook as an engine of advertisement. Wake up, Twitter. Business is being conducted right under your nose and you are doing nothing to either assist it or profit from it.
You own a river of commerce and you are raising billboards to obstruct its flow. That’s stupid.”
In other words, Twitter’s insistence on being like Facebook is a step in the wrong direction, as the platform and interface aren’t enough like Facebook’s to make it work well.
To some extent the acquisition of artificial intelligence developer Whetlab in June could address the spending “intent” Whitaker was talking about in another part of his commentary.
But, with no clear goal or timeframe of Whetlab for the public to peruse, owners of TWTR stock can only speculate as to when (or even if) Twitter will begin to effectively monetize its user base.
Bottom Line for FB and TWTR Stock
None of this is to say Twitter is beyond hope and that TWTR stock is forever doomed — but CEO Jack Dorsey has some major, philosophical rebuilding to do.
In the meantime, FB stock is riding high on decided success from the company.
The decision between the two isn’t a difficult one.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
