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Facebook A Much Better Value Than Twitter

November 11, 2013 | About:

I had mentioned that I’d be very reluctant to short a stock like Twitter (NYSE:TWTR). I do stand by that statement and doubt I’d short it anytime soon. There is too much risk involved in betting against a stock that has so much potential, an incredibly volatile stock, etc. That being said, as much as I was tempted to buy Facebook right after the IPO, I’m not getting that feeling when I look at Twitter. It looks incredibly expensive to me. There is certainly a possibility that Twitter will be one of those stocks like Amazon (AMZN) and LinkedIn (LNKD) that ends up getting away. I am willing to take that risk though as I feel like here are stocks with higher upside risk with less risk. The obvious comparison to Twitter is Facebook of course. Why?

-Facebook was the last big tech stock to go public

-They are both part of the new “social web”

-The both had many question regarding their profitability

-etc

Comparisons Stop There

Yes, the Twitter IPO has certainly gone much smoother. There were no technical glitches, the stock had that expected IPO bump (from a $26 IPO to trading above $40), etc. It has been a smoother ride and in a way, Twitter did indeed avoid many of the mistakes made by Zuckerberg & Co. Where does Twitter now stand? The company is currently valued at $23B or so (20% of Facebook’s value).

What does Twitter currently have to show? It recently doubled its annual revenues to $534M (about 10% of Facebook’s).

So basically, you end up paying twice as much in terms of value/revenues. It gets worse though. In terms of earnings per share, Facebook was profitable a few years before going public. For Twitter? Analysts expect Twitter to have a profitable quarter for the first time in Q4 2014!! Analysts expect a profit of $0.01/share for Twitter then compared with a $0.34 profit for Facebook (34x less).

One of the main arguments is that Twitter is going public at a much earlier stage than Facebook. I’d agree with that. But I do still think the upside for Facebook remains much higher as it can go well beyond advertising. It’s also possible for Twitter but certainly not as obvious. Do I expect Twitter to grow revenues faster than Facebook? Yes maybe for 1-2 years. But I can’t imagine that trend keeping up.

For those buying Twitter, what is the basis of your purchase? I love the product but just think the valuation is inflated.


Rating: 3.3/5 (3 votes)

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