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Intelligent Speculator
Intelligent Speculator

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


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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