Twitter's (TWTR) decision to sell itself to Elon Musk for $54.20 a share likely disappointed many long-term investors.
The social media company went public at $26 per share on Nov. 7, 2013, and its stock started trading at $44.90. Therefore, investors who bought Twitter's stock on the first day waited eight and a half years for a takeover bid which was only 20% higher than its opening price. The S&P 500 rallied nearly 140% during that same time frame.
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Twitter's disappointing returns can be attributed to its sluggish growth in users, its abrupt CEO changes, and its inability to launch new features. It acquired promising companies like Vine and Periscope but prematurely killed them off. It also became a toxic battleground of hate speech and fake news.
Musk's takeover bid hasn't been finalized yet, but it's casting a dark cloud over other social media stocks. Nevertheless, two other social media stocks will likely fare much better than Twitter over the long run: Facebook's parent company Meta Platforms (META 1.74%), and Snap (SNAP 2.93%).
1. Meta Platforms
Meta's stock tumbled about 40% this year as investors fretted over Facebook's first sequential drop in daily active users (DAUs), headwinds from Apple's (AAPL -0.39%) privacy update on iOS, competition from ByteDance's TikTok, and its commitment to pouring more cash into its money-losing Reality Labs (virtual and augmented reality) business.
Those problems surfaced during its fourth-quarter report (released in February), but it resolved some of those issues in the first quarter.
Facebook's DAUs grew sequentially again during the quarter, even as it faced a suspension of its services in Russia and a subsequent decline in European ad revenue, and it slowly stabilized its advertising business.
Its short videos on Facebook and Instagram also locked in more users and shored up its defenses against TikTok. The total number of monthly active people across its entire family of apps (Facebook, Messenger, Instagram, and WhatsApp) still rose 6% year over year to 3.64 billion.
Analysts expect Meta's revenue to rise just 9% to $128.2 billion this year, which would represent a significant slowdown from its 37% growth in 2020, and for its earnings to decline 12%.
That outlook seems dim, but I'd argue that most of Meta's near-term struggles have already been priced into the stock at 16 times forward earnings. Once Meta resolves its ad-targeting issues on iOS, proves it can keep pace with TikTok in short videos, and scales up its fledgling metaverse business, I expect its stock to bounce back and eventually hit fresh highs.
2. Snap
Snap's stock also lost roughly 40% of its value this year because it made one major miscalculation. During its investor day presentation last February, it brushed off concerns about Apple's iOS update and boldly declared it would grow its revenue by roughly 50% annually for "the next several years."
But in the second half of 2021, it admitted that Apple's iOS changes were generating stronger-than-expected headwinds for its direct response ads. Its revenue still rose 64% to $4.1 billion in 2021, but analysts expect just 34% growth this year as it addresses the iOS changes with new ad-tracking services (like Snap Pixel), counters TikTok with its own short video platform Spotlight, and grapples with the same macro headwinds in Europe as Meta.
Nonetheless, that growth rate is still impressive for a stock that trades at just eight times this year's sales. It isn't consistently profitable yet, but its annual losses are narrowing. Its full-year operating cash flow and free cash flow also turned positive for the first time in 2021.
Snapchat's DAUs rose 18% year over year to 332 million in the first quarter of 2022, and it expects to reach 343 million to 345 million DAUs in the second quarter. It's a lot larger than Twitter, and it remains the second-most-popular social media platform for teens in the U.S. after TikTok (according to Piper Sandler). It could also still have plenty of room to grow as it launches new AR lenses, games, integrated mini-apps, and short videos to lock in more users.
