Both Facebook (META -10.56%) and Twitter (TWTR) may be social-media companies, but that doesn't mean that the stocks of the two companies moved in the same general direction during 2015. Indeed, this isn't what happened at all.
From the beginning of the year to the time of this writing, both stocks have moved in opposite directions. Year-to-date returns for Facebook and Twitter stocks are about a 31% gain and a 31% decline, respectively.
After such a volatile year, and after the two stocks moved in opposing directions, it's a great time for investors to compare the two social-media companies. Consider how Facebook and Twitter differ on these three metrics.
|
Company |
Market Capitalization |
P/S Ratio |
Trailing-12-Month Revenue Growth |
|---|---|---|---|
|
|
$288 billion |
19 |
42% |
|
|
$17 billion |
8.5 |
70% |
Size
At $17 billion, Twitter is a big company as measured by a range of metrics. But Facebook is downright monstrous. Consider Facebook's $288 billion market capitalization next to long-standing names we're all familiar with: Wal-Mart, Walt Disney, and Ford Motors have market capitalizations of $190 billion, $179 billion, and $54 billion, respectively.
With Facebook garnering such an impressive market capitalization, gains likely won't come as easily in the future. Of course, market capitalization alone isn't enough reason for investors to ditch a stock, but investors should at least note that it might be more difficult for the social network to continue attracting more investment dollars as the company matures, and revenue growth slows.
Twitter's comparatively small market capitalization is representative of the social network's lower revenue and earnings, as well as investor uncertainty about whether or not Twitter will remain a niche platform, or eventually appeal to the masses.
Growth
Twitter's user growth appears to be stalling. Q3 monthly active users grew just 1% sequentially -- or less than 1% when excluding SMS Fast Followers, who are low-value users who access Twitter via SMS primarily on feature phones. But Twitter's revenue and EPS is soaring. Twitter's trailing-12-month revenue and EPS are up 70% and 60.5%, respectively.
Twitter headquarters. Image source: Twitter.
While Twitter's business growth may be impressive. Facebook's is even more impressive in absolute terms. It's one thing for Twitter to grow its revenue to about $2 billion during the trailing 12 months from $1.1 billion in the year-ago period, and quite another for Facebook to grow annual revenue from a base of about $11.2 billion to $16 billion during the trailing 12 months.
Further, given that Twitter is a newer, smaller social network than Facebook, investors expect Twitter to be growing fast. But Facebook's ability to grow revenue by about 42% during 2015 came as quite a surprise.
Valuation
Twitter and Facebook differ as drastically on valuation as they do on size and growth. Measured by price to sales, which is a fair valuation metric for comparison of two companies that both make the majority of their revenue net and income from digital advertising, Facebook commands twice the premium as Twitter. Facebook's P/S ratio is 19; Twitter's is 8.5.
The wildly different valuations provide insight into how investors currently view future prospects for the two companies. Facebook, along with its host of fast-growing social properties, has proven to investors that it can grow both its business and the user counts of its social platforms. Twitter, on the other hand, is eyed with skepticism, as investors are faced with a situation in which the social platform will need to reinvigorate slowing user growth in order to sustain long-term business growth.
Which stock do you believe has a better shot at outperforming the market over the long haul? I'm placing my bets on Twitter, with a simple thesis that the smaller social network can find a way to reinvigorate growth under new leadership, and in time, more than live up to its comparatively more conservative valuation.
