Facebook, Inc. and Twitter, Inc. are two of the world’s biggest social media platforms. As people are spending more time on social media for communication as well as entertainment under the stay-at-home normal, both FB and TWTR have been witnessing a significant rise in their daily active users.
Both stocks have generated decent returns over the past five years. While FB returned 153% over this period, TWTR has gained 35.2%. In terms of year-to-date performance, FB is a clear winner with a 27.3% return versus TWTR’s 23.2% gain. But which of these stocks is a better buy now? Let’s find out.
FB’s long-term plan of monetizing the huge WhatsApp user base is just getting started. Last month, the company announced plans to increase its investments in the Shopping, Facebook hosting services, and business sales area in the messaging app.
Instagram reels recently launched by FB have been taking on TikTok. The company also invested $5.7 billion in India’s Jio platform to capitalize on the world’s second largest country’s (by population) digital transformation. FB also introduced the First AI Model M2M-100 last month that translates hundreds of languages without depending on English.
TWTR recently updated its account security. The company acquired Chroma Labs, a story template maker, earlier this year. In May 2020, TWTR acquired Crossinstall, an interactive mobile advertising company.
Recent Financial Results
FB’s revenue surged 21.6% year-over-year to $21.47 billion in the third quarter that ended September 2020. Monthly Active Users (MAUs) increased 12% year-over-year to 2.74 billion. Family monthly active people (MAP) increased 14% year-over-year to 3.21 billion. The Average Revenue per User (ARPU) increased 8.7% year-over-year to $7.89.
TWTR’s revenue for the third quarter that ended September 2020 increased 14% year-over-year to $936 million. Its revenue from advertising increased 15% year-over-year to $808 million, owing to greater ad engagements. The Average Monetizable Daily Active Usage (mDAU) increased 29% year-over-year to 187 million.
Past and Expected Financial Performance
FB’s revenue and EBITDA grew at a CAGR of 29.4% and 20.4%, respectively, over the past 3 years. The market expects the company’s revenue to increase 23.6% in the fourth quarter ending December 2020, 18% in the current year, and 24% next year. FB’s EPS is expected to grow 19.5% in the fourth quarter, 21.6% for the quarter ending March 2021, and 16.3% next year.
On the other hand, TWTR’s revenue and EBITDA grew at a CAGR of 12.2% and 7.9%, respectively, over the past 3 years. The market expects TWTR’s revenue to increase 14.5% in the fourth quarter ending December 2020, 2.3% in the current year, and 22.1% next year. The company’s EPS is expected to grow 8% in the fourth quarter, 27.3% for the quarter ending March 2021, and 206.4% next year.
FB’s trailing-12-month revenue is 23.22 times what TWTR generates. FB is also more profitable with a gross margin of 81% versus TWTR’s 63.7%.
Moreover, FB’s ROE and ROA of 23.9% and 13.3% compare favorably with TWTR’s negative values.
In terms of trailing 12-month price/sales, FB is currently trading at 9.43x, slightly more expensive than TWTR which is currently trading at 9x. FB’s trailing 12-month EV/sales of 8.86x is 8.7% higher than TWTR’s 8.15x.
In terms of trailing-12-month price/cash flow, TWTR’s 33.32x is 51.2% higher than FB’s 22.03x.
Both FB and TWTR are rated a “Buy” in our proprietary POWR Ratings system. Here’s how the four components of overall POWR Ratings are graded for FB and TWTR:
FB has an “A” for Trade Grade, Peer Grade, and Industry Rank and a “B” for Buy & Hold Grade. It is currently ranked #9 out of 58 stocks in the Internet industry.
TWTR holds an “A” for Trade Grade, Peer Grade, and Industry Rank and a “C” for Buy & Hold Grade. It is currently ranked #4 in the same industry.
Both FB and TWTR are good investment bets considering their market dominance and continued expansion. However, with a huge user base and consistent growth history, FB clearly appears to be a better buy based on its impressive financials and higher earnings growth potential.