Is Twitter Hopelessly Outgunned by Facebook and Google?

Source: Thinkstock

Source: Thinkstock

It’s convenient to pair Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) as the go-to social media enterprises on the market. Between them, the two platforms command an outsized share of that ephemeral metric of attraction — call it buzz – that keeps them in the headlines and at the forefront of the broader conversation about social media, the Internet, and the adoption of mobile technology.

Facebook’s position in this small pantheon has been solidified by its sheer size, if nothing else. As of the end of March, the social network had 1.23 billion monthly active users (MAUs), 757 million daily active users (DAUs), and a market capitalization of more than $150 billion. The company reported annual revenues of $7.87 billion in 2013 and free cash flow of $2.85 billion.

Perhaps the most visible and visceral evidence of Facebook’s size are the two major acquisitions the company made in the past few months. In February, Facebook announced the $19 billion acquisition of instant messaging service WhatsApp; in March, the company announced the $2 billion acquisition of Oculus VR, the maker of the Oculus Rift headset.

Each deal attracted scrutiny — both positive and negative — for a variety of reasons, but both screamed the same message to investors: Facebook isn’t messing around. The social network appears to have adopted a strategy championed by major tech titans like Google (NASDAQ:GOOG), which ostensibly competes with Facebook on a couple of fronts.

That policy? Acquire, acquire, acquire. Facebook has acquired about 45 companies from around the world since 2007. Google has acquired more than 100 during the same period.

Facebook’s acquisition rampage begs the question: Is this a strategy that Twitter will pursue? The answer, at a glance, is yes. Twitter has made 29 acquisitions since July 2008 and doesn’t appear ready to slow down. If it did, it may lose one of the best things it has going for it, which is momentum.

Twitter stock hit the ground running following the company’s initial public offering in November. By the end of December, shares had increased nearly 50 percent in value from the close of the first trading day. The stock has since lost steam, falling back to around $46 at the end of March, but the company’s valuation  is still incredible. Twitter has a market cap of $26.41 billion, which many market watchers think is too generous for a company that hasn’t yet posted a profit.

Broadly speaking, Twitter has to do two things to grow into its valuation: monetize and increase its user base. The company is pursuing both vectors, but it’s still unclear how successful the company will be. Twitter recently just passed 240 million MAUs, still a far cry from the reach of Facebook’s social network.

The company commanded just 2.4 percent of the increasingly important mobile advertising market in 2013, according to eMarketer, and its share is expected to grow to just 2.6 percent in 2014. The social platform posted total revenue of $664 million in 2014, small change compared to its competitors, and a full-year net loss of about $645 million.

Meanwhile, in 2013, Google claimed a commanding 49.3 percent of total ad spending, while Facebook claimed 17.5 percent. However, Facebook’s share is up from just 5.4 percent the previous year, while Google’s share in 2013 declined from 52.6 percent in 2012.

This is because 2013 was the year in which Facebook successfully monetized mobile, bringing mobile ad revenue up from about 23 percent in the fourth quarter of 2012 to more than 50 percent of total ad revenue in the fourth quarter of 2013. Moreover, Facebook’s share of total mobile ad spending is expected to increase to 21.7 percent in 2014, while Google’s leading position is expected to erode to 46.8 percent.

Twitter, meanwhile, appeared to casually earn itself 75 percent of ad revenue from mobile, an enormously encouraging feat for Twitter bulls, given the apparent direction of growth for the advertising industry. EMarketer reported earlier this month that the mobile ad market grew by 103 percent in 2013 to a total $17.96 billion, and that this year to date, the market is on track to grow another 75.1 percent to $31.45 billion.

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