Social media has been front and center in news cycles for months. Controversy around how much power the platforms have captured global attention. No matter which side of the debate social media users choose, they are logging on to their favorite sites to participate in the discussion – and that’s good for business.
All it took to drive engagement was a bit of controversy, homebound users craving digital connections, and people in need of socially distanced entertainment.
With so much going for them, investors aren’t questioning whether to buy social media stocks. That’s a resounding yes. What they are asking is: Facebook vs Twitter stock – which is best?
The Bull Case For Facebook
Facebook stock grew by 75 percent from March 2020 to March 2021. That’s better than the S&P 500 (SPY), which only increased by 62 percent during the same period. Much of that growth is attributed to Facebook’s commanding lead in market share.
At the end of 2020, Facebook reported 2.80 billion monthly active users (MAUs) and 1.84 billion daily active users (DAUs).
When you consider the fact that the world’s population is roughly 7.9 billion, the number of Facebook users is all the more remarkable. Nearly 35 percent of all the humans on the planet log into Facebook at least once a month.
Needless to say, those figures give Facebook a significant advantage when it comes to attracting advertising dollars. That bodes well for Facebook’s ability to generate revenue growth, both short-term and long-term.
Higher revenues allow Facebook to invest in new technology that is likely to propel the business forward. For example, in 2014, the company acquired virtual reality (VR) leader Oculus. It is now enhancing that technology and working towards breakthrough augmented reality (AR) technology.
The plan is to integrate VR and AR into the larger Facebook ecosystem. These advantages have many investors convinced that Facebook stock is a better buy than Twitter.
The Bear Case For Facebook
Facebook certainly has advantages over Twitter, but the company also has challenges. Some investors feel the hurdles are concerning enough to avoid Facebook stock altogether.
The biggest is that the Federal Trade Commission (FTC) and dozens of states allege the company has violated antitrust regulations. They want Facebook and two of its acquisitions – Instagram and WhatsApp – to be broken back down into separate companies.
The second wrinkle in Facebook’s strategic plan is a new policy from Apple (AAPL). The maker of iPhones and iPads announced that an iOS update will now offer users the option of turning off tracking for any and all of the apps they use. That includes Facebook.
If any measurable percentage of Facebook’s user base chooses to shut down the platform’s ability to track them, Facebook will lose a critical element of its value proposition for marketers: targeted advertising.
It is clear Facebook is concerned, because the company has poured millions into persuading the public that this move by Apple is bad news, especially for small business.
These two issues, combined with the standard concerns about tech stocks in general and social media stocks in particular, have some investors saying no to Facebook.
Why Buy Twitter Stock?
If Facebook stock had a good year, Twitter stock had a great one. Over the past 12 months, Twitter share prices grew by 140 percent.
As with Facebook, Twitter grew its user base over the course of the pandemic, ending 2020 with 192 million daily active users (DAUs). That’s a 27 percent increase, which puts Twitter in a solid position for bringing in new advertising revenue.
Total revenue growth in 2020 was just 7 percent, but that figure doesn’t give a full picture. In the fourth quarter, revenue was up 28 year-over-year, demonstrating that revenue accelerated from one quarter to the next.
Management expects more of the same in 2021, which has many investors persuaded that Twitter stock is a buy.
Risks of Investing in Twitter
Twitter hasn’t been the subject of the sorts of regulatory issues that Facebook is fighting, but it does have its own share of problems.
In early 2021, it made an unprecedented decision to ban a vast swath of accounts, including those belonging to prominent politicians. The platform cited the users’ failure to comply with user agreements.
That move cost Twitter a portion of its base, and it inspired criticism from all sides. It’s not yet known whether there will be long-term repercussions from this action.
It’s also worth noting that while Twitter increased its revenue, operating profit was down – by a lot. The year-end total of $26.7 million was a year-over-year decline of 93 percent.
However, that is primarily attributed to the large investments Twitter made in the platform, which should drive continued revenue growth and profitability.
Nonetheless, some investors say now isn’t the right time to buy Twitter stock. Better to stick with the proven winner: Facebook.
Facebook Vs Twitter Stock: Conclusion
As a company, Twitter has more room to grow than Facebook. That could drive impressive returns for shareholders, while Facebook trends up more gradually.
However, most analysts agree that Facebook’s performance history and expected future growth coupled with low price-to-earnings and price-to-sales basis make it a winner. In other words, when deciding between Facebook and Twitter stock, Facebook is the best buy.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.