Social media stocks have become one of the hottest sectors to watch in the stock market. With most forms of commerce and business services now shifting online, there has never been a more important time for companies to be relevant on social media. The power of social media cannot be overstated. And chances are the power of these platforms is only going to grow. This is because society is spending more time on them. Users are relying more on social media not just for entertainment but also for news and opinions.
While social media stocks are susceptible to government regulation, you can’t deny that top social media stocks did exceptionally well last year during the pandemic. With the ongoing shift to digital advertising, these companies could be in for sustained growth in the years ahead, even when the pandemic subsides. You could say that Facebook (NASDAQ: FB) dominates social media globally. Despite this dominance, it has not unseated Twitter (NYSE: TWTR) in the microblogging space. With economies reopening and advertising revenue starting to recover, which social media stock is the better buy in the stock market today?Facebook’s (FB) Ad Spending To Be A Crucial Source Of Revenue
The social media goliath is no doubt, a household name that needs no further introduction. This is clear as its platform continues to help billions of people worldwide stay connected with friends and family. As one of the leading social media players on the market, FB stock has been in the limelight over the past year.
The social media giant recently came into the limelight after receiving a price target increase to $385 from analyst Lloyd Walmsley at Deutsche Bank. With a potential upside of 32%, it may not be surprising why FB stock has stayed the course when many other tech stocks continue to trade lower in recent weeks.
“We think investor focus is starting to shift away from fears around iOS changes toward a continued ad recovery and benefits from more eCommerce activity shifting into Facebook’s platform,” Walmsley wrote in his research note explaining the price target hike. He believes that ad spending is likely going to be the crucial source of revenue for Facebook moving forward. Investors seem to be buying his argument, with FB stock rising 2.8% higher on Monday’s intraday trading session.Quarterly Report Demonstrated Facebook’s Strength Across The Board
From the company’s latest quarterly report, Facebook raked up a total revenue of $28 billion for the quarter. To investors’ delights, it saw a 52% year-over-year leap in earnings per share as well. Another key metric to note when it comes to social media companies would be daily active users (DAUs). Well, Facebook saw an average of 1.84 billion DAUs in December.Source: TD Ameritrade TOS
Moving forward, the company cited growing e-commerce trends and shifting consumer demands as key drivers for its current momentum. Understandably, these provide a tailwind for Facebook’s advertising business and marketplace. As these factors remain present along with the pandemic, Facebook could be able to maintain its current momentum. There’s no reason to doubt the social media giant’s strong execution at this moment.
In coming years, there’s a great chance that Facebook is likely to keep growing at double-digit rates as it unlocks the value of Instagram and WhatsApp. On top of that, Facebook could also deliver upside surprises with newer ventures. These include the Oculus virtual reality platform and payment services. With all these in mind, Facebook is becoming the advertising platform of choice for businesses that intend to utilize social media to reach out to new customers.Twitter (TWTR) Stock Gains After Truist Upgrade
After much drama around the U.S. election, Twitter stocks seem to be back on track. Similar to Facebook, TWTR stock was upgraded to ‘Buy’ from ‘Hold’ at Truist Securities. The firm raised its price target to $74 from $64.
While Twitter may be lagging behind Facebook in terms of revenue growth this year, TWTR stock has been the better stock over the past year. To put things into context, FB stock may be up 75% over the past year, but TWTR stock is up over 145% in the same period.
As you may already know, Twitter has been working on re-engineering its ad platform for several years. The company continues to explore the addition of subscription services and other paid features to supplement its advertising revenue. And it seems like its strategy is working. Notably, the company brought in more direct response advertisers last year. What’s more, its new mobile application promotion tool generated 50% growth in Q4.Twitter Racked Up Its Second $1 Billion Quarter
Since the most recent financial report, TWTR stock has seen a nice run. This came after the social media company beat Wall Street’s earnings and revenue expectations. Revenue grew 28% year over year to $1.29 billion, above the $1.19 billion estimates from Wall Street.Source: TD Ameritrade TOS
It was a strong quarter for digital advertising companies in general. They were buoyed by the push toward online shopping during the pandemic. However, it’s worth mentioning that Twitter may also have a hard time generating near-term profits even if its revenue growth holds up. That’s simply because it’s still making some heavy investments. The management is expecting total expenses to increase by 25% or more in 2021. Therefore, revenue would have to increase at a higher rate for profitability to improve.
As Twitter continues to engage users on the platform, there could also be more room for content creators to generate income from the site. It will be important to continue to watch how Twitter innovates and whether these tools become more widely available to users.
Despite Twitter’s top line advancing at a faster pace than Facebook, many investors still prefer FB stock over TWTR stock. That’s because Facebook isn’t a one-trick pony. With its large user base, Facebook’s moat may be enough for some to invest in the stock. That said, even if its social media platform wanes in the years ahead, its diversified business is sufficient to keep the growth going.
On the flip side, if you are bullish on Twitter’s combination of new product launches and acceleration of user growth, then you may want to include TWTR stock on your watchlist. Yes, the valuation may keep you from buying them outright. However, there could be reasons to believe that the company can hit its user and revenue targets. If so, an investment in the microblogging company may not be so bad after all.