The internet is a thriving business platform these days. Alphabet (GOOG 0.99%) (GOOGL 0.96%) dominates the online search and advertising spaces through its Google division. Twitter (TWTR) is the leading name in microblogging. Would any of these tickers be a fit for your own investment portfolio?
Let's find out.
By the numbers
Google is the far larger business, by any reasonable measure. With this scale advantage comes a financial stability that Twitter can't come close to.
Before going any further, let me point out that the Google division contributes 99.1% of Alphabet's revenue. As such, I'll simply use Alphabet's results as a reliable proxy for Google's business results.
On that note, Alphabet's revenue over the last four quarters added up to $81.8 million while Twitter stopped at $2.5 billion. You can access financial data for the last four years of Twitter's operations, and its trailing sales have grown more than fivefold in three years. Meanwhile, Alphabet's revenue increased by 65%.
Alphabet investors can look back at $18.9 billion of trailing net income and an even $20 billion of free cash flows. Twitter produced $293 million of free cash over the same period, but recorded an adjusted net loss of $409 million.
Today, Alphabet sports the world's second-largest market cap at $547 billion along with healthy profits and respectable growth across the board. Twitter is far smaller but its medium-term growth is nothing short of astonishing. In short, Twitter is the hungry upstart in this scenario despite its ten years of operating history. Google is nearly twice as old and grew up very quickly, making it a true giant of modern business.
So far, Twitter certainly looks exciting. Google is too large to keep up with the microblogger's rampant growth, and that's all that matters.
Well, no. As it turns out, Twitter's growth has hit the brakes in a downright frightening manner while Google simply keeps on trucking. Over the last six months, Alphabet's revenue growth nearly matched Twitter's. And in the last quarter, the search giant pulled into the passing lane.
Twitter's shares took it on the chin. At the start of 2016, the stock traded at more than 400 times trailing free cash flows. Now that ratio has dropped all the way to 43. At the same time, Alphabet's price to free cash flows ratio has hovered between 25 and 30, currently sitting at 27.
Google is now operating under the Alphabet umbrella in order to make it easier reaching into brand new markets -- often not related to online traffic at all. The company is exploring avenues such as self-driving vehicles, Google Fiber's broadband services, and medical research. Come back in a few short years, and Google probably won't contribute 99% of the larger company's sales anymore. Alphabet is itching to become a sector-spanning conglomerate built around the simple concept of "innovation."
Twitter would love to peer into the next era of online communications, but the company must first figure out how to survive the current one.
The company recently ousted CEO Dick Costolo last summer, eventually replacing him with ex-CEO and co-founder Jack Dorsey. Even with this throwback to better days, Twitter still looks rudderless. Share prices have been sliced in half since Dorsey came back, Twitter is officially looking for a buyer, but no one is biting.
The bottom line
So in the red corner, we have an online giant mapping out a future as a mostly offline conglomerate as share prices explore fresh all-time highs.
In the blue corner, there's a skyrocketing start-up running out of rocket fuel and good ideas.
I'm an Alphabet investor with no interest in owning Twitter shares. I think we just explored many of the reasons why.
Winner: Alphabet and Google, by knockout in the third round.