Twitter (NYSE:TWTR) had more than just its wings clipped after reporting a disappointing quarter. Despite a strong start to the year, the company proved once again that Facebook is Wall Street’s favorite social butterfly. However, if you’re suppose to ‘buy low and sell high,’ should investors now favor Twitter over Facebook? Let’s take a look at three areas where Twitter may or may not be escaping Facebook’s shadow.
Twitter knows how to generate revenue, just not as much as Facebook. In the quarter ending March 31, 2015, Twitter’s revenue came in at $436 million, up 76% from $250 million a year earlier. Excluding the impact of year-over-year changes in foreign exchange rates, total revenue would have increased 80%. Yet revenue was a big miss. Analysts expected revenue of $457 million. Twitter’s own forecast called for $440 million-$450 million.
“While we exceeded our EBITDA target for the first quarter, revenue growth fell slightly short of our expectations due to lower-than-expected contribution from some of our newer direct response products,” said Dick Costolo, CEO of Twitter, in a press release. “It is still early days for these products, and we have a strong pipeline that we believe will drive increased value for direct response advertisers in the future.”
Out of Twitter’s $436 million revenue haul for the quarter, advertising accounted for $388 million. Mobile advertising revenue was 89% of total advertising. In comparison, Facebook’s advertising revenue for the most recent quarter reached $3.32 billion. In fact, Facebook’s chump change revenue category, payments and other fees, brought in $226 million, more than half of Twitter’s quarterly revenue. Twitter’s advertising strategy has been stuck in the “complicated” stage of development for years with hope that a clear strategy will emerge, but investors are growing impatient.
The world only has so many eyeballs with Internet access, and most of them are fixated on Facebook. While Zuckerberg’s company has attracted 1.44 billon monthly active users, Twitter “only” has a following of 302 million. As underwhelming as that may appear, it does not necessarily mean that Twitter can’t monetize or increase its user base.
Twitter is taking steps to grow its humble nest of users. The company is working on introducing better media creation and consumption, enhancing private messaging between users and groups, and improving the new user experience so it’s easier to navigate for newcomers. Future acquisitions may also expand the user base. Vine, a short-form video sharing service purchased by Twitter in 2012 for $30 million, is now hosting more than 1.5 billion video loop uploads each day. Twitter ended the quarter with about $3.6 billion of cash and marketable securities.
Investors should note that Twitter is not likely to ever catch Facebook in terms of active users. Twitter is still largely considered a place where thoughts and news announcements get condensed into 140 characters. The real socializing takes place on Facebook.
3. Stock performance
Twitter’s relationship with investors has been touch and go at best. Shares soared from $36 in January to over $50 in late March. However, the weak earnings report, which leaked early, sent shares crashing 18%. That marks that second-worst trading day for Twitter since it went public in 2013. In addition to the worse-than-expected revenue figure in the recent quarter, Twitter lowered 2015 revenue expectations.
As the chart above shows, shares are now in the technical support range of $35-$40. Although Twitter is more appealing now than it was at above $50, strictly speaking in terms of price, the same problems remain. Twitter is struggling to attract users and advertisers at a pace that justifies its valuation. Furthermore, management has not been as quick to adjust to shareholder demands as Facebook’s C-Suite.
Social bargain hunters considering Twitter over Facebook need to remember that we likely haven’t seen the end of the volatility. After other share collapses by Internet names such as LinkedIn and Yelp, investors are on high alert for broken promises at unreasonable prices. Facebook is the true social butterfly, for now.
Follow Eric on Twitter @Mr_Eric_WSCS