Social media is now a big part of our lives every day but most of the focus is on this two social media giants, Facebook (NASDAQ:FB) which also owns WhatsApp and Instagram and Twitter (NYSE:TWTR).
Facebook stock has almost quadrupled in the past five years, where Twitter shares triple in value between June 2017 and July 2018. And yet, since this summer's high, these two are down an average of 30%. That leads to an obvious question: Is either of these two stocks a good buy today? And if so, which one is better?
Obviously, with 100% certainty, the answer is Facebook, here is why Facebook is the better bet than Twitter.
First, we will evaluate the financial fortitude of each company. We do this to see what would happen if there were a financial crisis right now. Obviously, the likelihood of that happening is small, but the consequences could be enormous.
Given that both companies rely almost exclusively on advertising dollars, any change to the tech's sector would have wide-ranging implications for both companies. What we want to know is this: Would either company fold under that stress, would they stay the same, or could they actually benefit over the long-run from a downturn?
You might be wondering: How could anyone benefit from a downturn? The answer: by buying back shares on the cheap, acquiring start-ups at discounts, or simply offering their goods in this case, advertising for less than their competitors to drive them out of the market.
Keeping in mind that Facebook is valued at over twenty times the value of Twitter, here's how they stack up.
Both companies have solid balance sheets and cash flows, but there's a clear winner: Facebook. While Twitter's debt load isn't that concerning given that a good chunk of it is in the form of low-rate, senior convertible notes, it does limit the company's flexibility to act if opportunities present themselves in times of crisis.
With absolutely no long-term debt, on the other hand, Facebook would significantly benefit from a downturn. While the Cambridge Analytica scandal and the specter of government oversight might prevent Facebook from making big acquisitions, it could easily buy back shares if they suddenly started trading at a significant discount.
Next, we have to look at the valuation. Facebook is a $470 billion giant, versus Twitter's much more modest $20 billion market cap.
Again Facebook looks like the better bet. Part of this is due to the fact that Twitter is spending more to help drive user growth, while Facebook is more of a well-oiled advertising machine. But even so, Facebook trades at a not-insignificant discount to Twitter on every metric but one (price-to-sales).
Sustainable competitive advantages
Finally, we have the most important factor to consider: sustainable competitive advantages, for both companies, the key is the more people join each platform, it becomes more valuable. Intuitively, this makes sense: Who would want to be on a social media platform that no one else was on?
Facebook who owns WhatsApp and Instagram is just starting cashing in that two investment. As it is, monthly active users (MAUs) currently sits at 2.23 billion, a figure that grew 11% from the prior-year quarter.
Twitter investors would give their left arm for growth numbers like that. As it sits right now, the platform has actually lost MAUs, though part of that has to do with the company's purge of fraudulent accounts.
Trends like that make it obvious that Facebook, thanks in large part to its ownership of Instagram and WhatsApp has a network effect with more staying power than Twitter.
So there you have it: Facebook is the better bet on every facet. It has a stronger balance sheet, more favorable valuation, and most importantly a wider (MAU).
If you're looking to invest in social media stocks, I think both are worthy of your attention; but if forced to choose just one, Facebook is the better bet today.
FB trading below 20-EMA line of $166.77, closed on Friday at $162.68 need not to say Facebook need to get back above the 20-EMA line to accumulate buyer to push it back above the 200-SMA of $180.35.
Immediate support is last Tuesday low of $158.99, a close below there will trigger negative sentiment.