Over the past several weeks we have heard from some of the big players in the social media landscape. Twitter (NYSE:TWTR), LinkedIn (NYSE:LNKD), Facebook (FB) and even Google (NASDAQ:GOOG) have all reported. The differences between each of these entities is quite stark. A review of each earnings announcement and projections is well warranted. In order to understand the difference between each company, we need to identify each individual market Twitter, LinkedIn, Facebook and Google are in. Furthermore, we need to understand and examine what type of potential each market holds. We use a proprietary economic model that introduces the effects of innovation and growth on the Law of Supply and Demand. Using this Growth Supply and Demand Model, we are able to more fully understand where each major player in social media is headed.
Google (GOOG) dabbles in the social media space with Google+ and YouTube, but has very limited resources and market share. Google announced that there are 540 million active monthly users, 300 million of which check their content stream a minimum of once per month, with over 1.5 billion photos uploaded per week to Google+. Social media represents an additional layer and opportunity for Google when paired with the smartphone marketplace, search and the evolving Google Glass technologies. GOOG has a current P/E of 30.72, a Forward P/E of 18.97, a PEG of 1.33, and a P/S of 6.49.
GOOG is the most mature company out of our list, growing EPS at an 11.8% clip during the fourth quarter on a YOY basis. That growth rate illustrates Google's ability to continue to innovate with new products and offers, considering the growth in revenue. However, with margins shrinking in the smartphone space due to the maturing nature of the industry, and having limited penetration in the social media space we could be seeing Google at the top end of their range this year. That implies no new groundbreaking products. Without a leap in innovation, demand for Google's current line of products could be peaking. That being said, if demand for Google's products begins to stabilize or growth continues to grow at a slower pace, we will see innovation slow due to resources being less available.
Forecast for GOOG: Google will continue to outpace the market during a tumultuous year in the market. Expect continued price appreciation in the short-term, but limited price appreciation in the long-term barring new product lines coming to market.
LinkedIn (LNKD) is a true social media network aimed at professionals and companies unlike any other major social media company. LinkedIn has the ability to put Monster.com (NYSE:MWW) and Careerbuilder.com out of business. LinkedIn has a more interactive approach between the site and user base than either MWW or Careerbuilder's sites. LinkedIn has a current P/E of 950.36, a Forward P/E of 62.79, a PEG of 1.90, and a P/S of 19.26.
LinkedIn is more mature than either Facebook or Twitter, growing EPS at a 10.3% clip for the fourth quarter on a YOY basis. The growth rate gives LinkedIn the opportunity to develop and implement more products. However, LinkedIn's pure social media business model and lack of explosive growth limit LinkedIn's future. The job search and head hunting space is somewhat limited with well defined market parameters. LinkedIn doesn't have the ability to enter the content streaming space given the relevance to their current business model. Also, LinkedIn management hasn't shown an interest in the past to explore other markets. Out of any social media company, LinkedIn may have the most limited upside as far as it pertains to the size of the market the core business is in.
Forecast for LinkedIn: LinkedIn grew at a slower pace during the fourth quarter on a YOY basis than the prior year. If that becomes a trend, the ability for LNKD to innovate new products will become even more limited than the space already allows. Expect LNKD to enjoy price appreciation greater than the overall market in the short-term due to the social media connection. The long-term looks to move LNKD into the takeover target category as the market space is limited for the social media player.
Twitter (TWTR) represents interesting opportunities within the social media space. The innovation at Twitter between products, ads, takeovers and management shifts the demand curve drastically to the right. The key for Twitter is to continue to innovate, keeping pricing for ads low and allowing an efficient marketplace for advertisers. Twitter has a Forward P/E of 269.88 and a P/S of 50.99. The concerning detail for Twitter was the outlook provided by management on the growth of the user base. With a pessimistic growth outlook that will limit Twitter's ability to innovate as management projects less resource availability to develop that innovation. Less innovation will mean less demand from users and advertisers in the future.
What does all of this mean? OST Consulting would look for the Twitter ad rollout to take a little more time to become as efficient or profitable than Facebook's ad rollout took. Twitter's management was trying to tell investors that they are going to work on monetizing the site, mobile and otherwise, more effectively, but that management is expecting some trial and error along the way. As an investor, expect these next several quarters to be a learning experience for Twitter.
Forecast for TWTR: Twitter is attempting to monetize its site and apps as efficiently as possible. Investors were slightly overanxious, to say the least, between the IPO and the first quarter earnings announcement. Consequently, the stock ran too far too fast. Allow TWTR to figure out the proper monetization methods for them in the short-term. More aggressive investors will have every opportunity to capitalize on the volatility, whereas more cautious investors should wait to see exactly how Twitter decides to monetize itself. In the long-term, content, products and streaming services represent a phenomenal opportunity for Twitter. TWTR isn't limited to any specific industries like LinkedIn, but may need to expand their self imposed 160 character limit to keep up with Facebook for relevance.
Facebook (NASDAQ:FB) is the purest social media play that has already deciphered the proper monetization method for its business model. Facebook's introduction of video to Instagram and FB both on mobile and desktop provides more opportunity for advertising revenues. The future of social media lies in providing live content and streaming services. Facebook's management team has proven more than apt at evolving and implementing new strategies to provide a return for shareholders. FB has a current P/E of 105.27, a Forward P/E of 38.29, a PEG of 1.58 and a P/S of 20.13.
Facebook just announced EPS growth of 82% for the fourth quarter on a YOY basis. That growth rate is phenomenal when paired with the over 1.2 billion active monthly users. FB, like Twitter and Google, have no boundaries as it pertains to the market or demographic that they can seek. The marketplace is seemingly endless. The extreme growth rate allows Facebook to provide a far greater supply for advertisers. Likewise, due to the innovation at Facebook, demand from those same advertisers continues to shift to the right as well. The key for Facebook is to continue to provide rapid innovation and improvements to keep up with demand. If they can do that, and they have had no problems doing so to date, we could be looking at the next Ford (NYSE:F) of a new generation.
Projection for Facebook (FB): In the short-term, look for Facebook to continue to rapidly innovate between products, ad placements, personnel and other factors as well. Facebook should enjoy the greatest price appreciation out of these four social media companies. As for the long-term, look for Facebook to mirror Google's sustained growth for the foreseeable future. With such an underdeveloped, explosive growth, infancy stage market, Facebook has every opportunity to be the leader in the social media space if they continue on the path they're on.
Disclosure: I am long FB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I own long call options on Facebook as well as the security. Always consult with a registered financial professional before adding a new position to your portfolio. Investing involves a significant risk of loss, as such never invest more than you can afford to lose.