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 late July, when disappointing earnings triggered the biggest one-day loss of value in stock market history, Facebook stock is down 21%, and that includes a strong run-up since the Christmas bottom. Twitter stock was down in the fourth quarter too, but is up 32% in the last year, versus a 5.7% decline 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.
Cabot Stock of the Week brings you:
Cabot Stock of the Week brings you:
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 22, TWTR 25
Forward P/Es: FB 23, TWTR 38
Latest earnings growth: FB 61%, TWTR N/A
Latest sales growth: FB 30%, TWTR 29%
Cash per share: FB $14.41, TWTR $7.86
Institutional ownership: FB 72%, TWTR 66%
Going by those fundamentals, FB stock looks like the better investment. It’s meaningfully cheaper, it’s growing sales slightly faster, and has twice as much cash per share on hand for things like acquisitions, share buybacks and perhaps offering a dividend payment someday. TWTR has less institutional ownership, which means it likely has more upside among the big hedge funds.
What about future growth? Twitter has the bottom-line edge there, while Facebook maintains better sales growth. In 2019, analysts foresee 24% sales growth and less than 1% EPS growth for Facebook; for Twitter, estimates come in at 13% sales growth and 11% EPS growth. (Twitter’s fourth-quarter and full-year 2018 earnings are due out this Thursday, February 7; Facebook reported last week and beat analyst estimates on both the top and bottom lines.)
Taking all those fundamentals into consideration, FB appears to have the edge over TWTR. But what about the charts? Let’s look at their six-month trajectories to get a sense of their intermediate-term trajectories.
No real edge there. While TWTR stock has been more up and down and FB was on steady decline from late-summer until Christmas, the fact is both stocks still trade right around their 200-day moving averages. Both have been on a tear for the last six weeks, making each a good short-term investment depending on how Twitter’s earnings go later this week. 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. I think next year’s projected double-digit growth in Twitter’s earnings—combined with Facebook’s expected earnings stagnation—is a sign of things to come.
Why TWTR is the Winner
Facebook has done real damage to its reputation over the last year 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 166% 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!