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Facebook Dampening Twitter’s High

April 11, 2014 | About:
Arrow Analysis

Arrow Analysis

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Six months ago, Twitter (TWTR), the newest tech-company to go public, showed its mettle by having a commendable first day of trading. Opening at a modest $26, Twitter went on to rise as high as $50.09 and closed the day at $44.90 per share, in stark contrast to its biggest rival, Facebook’s (FB) rather dismal IPO (Initial Public Offering). The stock gained 72% in one day. To investors, it seems, the micro-blogging site could do no wrong.

The Two Different IPOs

The first quarter after the company went public seemed to be in line with the predictions. Sales jumped up to $243 million, a 116% rise year over year. Ad revenue alone constituted about $220 million. By mid-December, Twitter had a market capitalization of $32.76 billion, which is significantly higher than the market capitalization of $24.46 billion which the company recorded on the first day of trade.

Facebook’s IPO, as we all know, was nowhere near this scale. The price per share barely made it even on the first day of trading, with only $0.23 per share gain. Second day of trading lost even that and within a week, it was trading about $10 below its offering price.

So Why Are We Even Comparing These Two?

It’s a good question. Facebook’s IPO, clearly, tanked, while Twitter’s soared. But now that some time has passed, analysts predict the reverse may be about to occur for the two rivals.

Facebook’s disappointing IPO may be attributed to timing only, some say. It had opened in a time when the Dow was down. As the market picked up speed, so did the social networking giant. On July 31, 2013, the stock finally climbed above its initial offering price. And since then it has only gained in momentum.

As of April 10, the company has a market capitalization of $150 billion. Shares have gained 9% in the last three months, with $4.22 spike, to $62.41, on Wednesday, its largest one day gain since Jan 30, 2014. Increasing advertiser demands and growth in user activity continues to propel Facebook further. Optimists even speculate that it may not be long before the stock reaches triple figure prices.

In comparison, Twitter’s momentum has been on the wane. The weak user growth had speculators quite uneasy. Twitter showed an average of 241 million monthly users in the latest quarter, a mere 3.8% growth. Previously the company had showed growths of 6-10% in its initial quarters. This sharp decrease, lowest in Twitter history made investors naturally wary.

But what’s even more damaging to Twitter’s profile is its large share of non-active users. As previously stated, Twitter revealed a monthly user average of about 241 million. The latest estimate puts the number of user accounts at about 970 million. That gives us about 75.15% people who have a Twitter account but never use it. And this is percentage on the rise.

Damaging statistics, isn’t it? But that’s not even the worst part. Twitter defines Monthly Average Usage as simply an account which has been logged into over the course of the month. Once is enough. That means if a person accidently taps on the app on their phone and the app automatically logs them in, they are counted. They don’t need to tweet or even look at anything. From the point of view of ads revenue, we can clearly see why Twitter’s revenue growth is on the decline.

The stock which reached a high of $74.73 on Dec 26 had dropped to $41.6 when markets closed on April 10. Judging by analyst predictions, the company isn’t ready to pick up its pace any time soon.

Concluding Thoughts

The two social networking rivals have much to prove to the world. Where Facebook first went public, and completely botched it, Twitter took its sweet time to perfect the opening. It chose NYSE in comparison to Facebook’s Nasdaq, planned the IPO in November, thereby benefitting from the holiday season and basically, did everything right.

But six months in, the results are out. Where Facebook is the stock that Wall Street loves right now, Twitter is akin to level IV explosives, to be handled with kid gloves. It really isn’t difficult to comprehend which one we are shipping right now.


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