In the social media group, Facebook (NASDAQ:FB) still seems like the stock to own. First and foremost, it has profits. Can you say the same about Twitter (NYSE:TWTR) or Snap Inc. (NYSE:SNAP)? Because Facebook is already established, it may be tempting for some to invest in one of these other two companies instead. The price is much lower; and if they found profitability, it would offer much more upside. Personally, I think that's a mistake. Above all things, Facebook is far better managed than these counterparts.
Business format/user growth
In comparison, Snap Inc.'s Snapchat, a much smaller company, tapped out at daily average user growth of 5% between Q4'16 and Q1'17 for a grand total of 166 million DAUs. The last three quarters have involved slow growth rates of 7%, 3.2% and 5%, respectively. Since DAU growth was 17.2% in Q2'16, there is a definite corollary between adjustments in Facebook/Instagram platforms that compete directly with the Snapchat app. As Instagram Stories was brought out at the beginning of August 2016, there's no question that it had a hand in slowing Snapchat's user growth. While Instagram itself far outpaces Snap's user growth with over 700 million users, Instagram Stories is the clearer indicator of how Facebook has used it to crush Snap. With over 200 million daily active users, Instagram's Stories has beaten Snapchat in less than 6 months.
Twitter parts with Facebook in the overall intent of design. Social media is all about advertising potential. Advertising potential requires users to see the said advertising. Twitter limits itself in comparison to Facebook because of its lack of duality. Facebook is multipurpose. It helps people share information with friends and family. It allows one to put witty little sarcastic junkets of 140 characters or 400. Twitter is almost an exercise in wit/interest in global events. You don't get on Twitter to share pictures with your mom who lives 5 states away. Personally, I think the main reason most people use Twitter is to see what celebrities tweet. You can't tell me Donald Trump's tweeting ways haven't drawn publicity from both negative and positive ends of the spectrum. Regardless, the user potential seems limited in relation to Facebook. Both companies have been around for a while, and Facebook has fared better from beginning to end. In terms of money, you get on twitter to advertise links to your blogs, websites, businesses etc.
Again, the proof is in the user growth. Twitter is growing much more rapidly than Snap. Considering that Snap isn't much more than vanishing pictures/videos, that's not surprising. It still doesn't face up to the competition from Facebook. Over a year, Twitters DAU's grew 14%. Monthly active users are at almost 330 million. Obviously, these numbers are well below Facebook and Instagram levels; but the lower growth rates are the real indicators of how everyone stacks up.
Monthly user growth, Daily user growth, none of it matters unless it results in a good bottom line.
Last year, Facebook made $10.19 billion in net income. Twitter lost $456 million. Per share, FB showed its shareholders $3.49; Twitter, a loss of $0.65. There truly is no comparison in this category. Facebook had over $8 billion in revenue for the first quarter of 2017. That's a 49% increase year over year. Twitter had revenue of $548.25 million. That's a 7.7% decline yoy. Need I say more? Snap sits in the same boat as Twitter financially, but hasn't had nearly as much time to find profitability. With the financials available, Snap peaked in the fourth quarter of last year with $165.68 million. The first quarter as a public firm, Q1'17 reported a 286% increase in year-over-year revenues to $149.64 million. Little can be said in terms of returns, however, as mass increases in expenses netted a loss of over $2 billion in net income. I am curious about the game plan for Snap. If it keeps expenses where they are now at well over $2 billion, it'll need more than the cash on hand to pay that bill. This either means debt or more shares. This will put pressure on the stock price.
For five years straight, Facebook's net income has grown. The rate of that growth is extraordinary. Enviable gross incomes have allowed the company to put billions into R&D while also growing profits by 3,084% from 2012 to 2016. How many stocks do you own with a fiscal year net income of $10.19 billion? Twitter, on the other hand, is proving incapable of turning a profit. The company grew revenue annually for five years and managed to lose money annually. Since it keeps losing money, the company keeps diluting shares to raise capital. This alienates anyone with a big position in the stock. Snap has yet to prove itself, and its platform lacks the multipurpose nature of Facebook.
In all, why bother with unprofitable enterprises with questionable potential, when Facebook is there for the taking? The company shows no signs of slowing down anytime soon; therefore the pricey P/E of 40 still seems okay to me.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.