They’re the two most recognizable social media platforms in America. But up until a year ago, there was no comparison between the two social media stocks – Facebook (FB) was a far superior investment than Twitter (TWTR). Twelve months and countless Facebook scandals later, and FB vs. TWTR is now more of a toss-up to anyone trying to pick the best social media giant to invest in.
Since last July, when disappointing earnings triggered the biggest one-day loss of value in stock market history, Facebook stock is down more than 11%, and that includes a strong run-up since the Christmas bottom. Twitter stock has had its ups and downs too, but is up 27% in the last year, versus a mere 8.8% gain in FB.
So, with the two stocks going in different directions, how you view them now may well depend on your investing style; a value investor might see FB as a bargain stock, while momentum investors would likely prefer TWTR’s chart.
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But let’s do a deeper dive on FB vs. TWTR to see which social media stock looks like the more viable long-term option.
FB vs. TWTR: Tale of the Tape
Trailing P/Es: FB 28, TWTR 23
Forward P/Es: FB 20, TWTR 36
Latest earnings growth: FB -51%, TWTR 212%
Latest sales growth: FB 26%, TWTR 18%
Cash per share: FB $15.85, TWTR $8.43
Institutional ownership: FB 74%, TWTR 70%
Going by those fundamentals, you could make the argument that FB stock is the better investment. It’s cheaper in terms of forward P/E, it’s growing sales slightly faster, and has nearly twice as much cash per share on hand for things like acquisitions, share buybacks and perhaps offering a dividend payment someday. But TWTR blows FB out of the water in terms of earnings growth, and Facebook’s EPS retreated by an alarming amount in the most recent quarter.
What about future growth? Twitter has the big bottom-line edge there too, while Facebook maintains better sales growth. In 2019, analysts foresee 24% sales growth and a 6.8% dip in earnings for Facebook; for Twitter, estimates come in at 16% sales growth with 23% earnings.
Taking all those fundamentals into consideration, TWTR appears to have the edge over FB. But what about the charts? Let’s look at their six-month trajectories to get a sense of their intermediate-term trajectories.
No real huge edge there. Both have been trending well, and are comfortably above their moving averages. TWTR had the more distinct gap up, in the third week of April, while FB has been steadily climbing higher. That’s the short-term story with the two stocks. But what about over the intermediate and long term?
Again, TWTR has been winning that battle for the last year. And I think it will continue to for at least the next year or two—perhaps beyond. Though the company struggled after coming public in November 2013 due largely to a lack of profits, the stock has regained its footing as the company has become consistently profitable.
Why TWTR is the Winner
Facebook has done real damage to its reputation over the last year-plus due its multiple scandals involving Russian hacks to sway political opinion among its users. Those incidents have eroded trust in the company, the platform, and Mark Zuckerberg himself, and management’s tone-deaf and insufficient responses to those scandals have only made matters worse. Meanwhile, aside from President Trump’s personal account (and depending on your political leanings), Twitter has mostly avoided major scandal. At this point, it may be the more trusted social media platform to the average American—if not the more universally recognized.
And that’s really the point: while Facebook has probably already passed the point of peak perception and recognition, both domestically and globally, Twitter has yet to reach its peak. And that means there’s a good chance TWTR stock has more room for growth than FB.
So, if I were to render a decision in FB vs. TWTR, I’d lean towards the latter. To me, Twitter is essentially Facebook five years ago in terms of perception, reach, and growth potential. If you had bought Facebook stock five years ago, you’d be sitting on a 237% profit today. Over the next five years, I think Twitter stock has that kind of potential.
Investment analyst and Chief Analyst of Cabot Wealth Daily, Chris Preston brings you all the latest from the investing world. Sign up to get updates and breaking news delivered FREE to your inbox. Get unlimited access to our library of complimentary investing reports.Sign up now!
*This post has been updated from an original version.