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Comparing Snap, Twitter and Facebook

- By Holly LaFon

Snap Inc. (SNAP) went public Thursday morning, soaring 46.8% above its IPO price of $17 to hit $25.95 per share in intraday trading. The much-anticipated debut of the creator of the social media platform with a forward-thinking user interface that lures millions of primarily younger people but offers little in the way of profit has drawn comparison to Facebook (FB), a long-term success, and Twitter (TWTR), a lingering question mark. The three started from three different places at their IPOs.


Facebook began trading in 2012, after having 185 million daily active users in 2009, 327 million in 2010 and 438 million daily active users in 2011. Twitter listed only monthly active users when it began trading in 2013, which averaged over 30 days were roughly 1.8 million daily active users in 2010, 3.9 million in 2011 and 6.17 million in 2012. Snap grew from 74 million daily active users in 2014, to 110 million in 2015, to 161 million in 2016.

While Facebook has the largest user base, followed by Snap, the one struggling the most in the market, Twitter, actually saw the highest growth in the three years leading to its IPO.

  • Facebook 137%
  • Twitter 243%
  • Snap 118%



Facebook also had the advantage of a head start on both companies. Mark Zuckerberg founded the site in 2004, while Twitter started in 2006 and Snap in 2011.

Advertising

Facebook: In 2009, 2010, and 2011, advertising accounted for 98%, 95%, and 85%, respectively, of our revenue. Twitter advertising accounted for 26% in 2010, 73% in 2011 and 85% in 2012, with data licensing making up the difference. For Snap, revenue accounted for 98% and 96% of total revenue in 2015 and 2016, respectively.

Snap has perhaps the strongest advantage in attracting revenue, with its coveted appeal to millennials and teenagers, as well as video ads and sponsored geofilters and lenses. Its Discover and Stories features have grasped the most revenue share, making up roughly 80%. Its challenge will be able to generate more return on investment for advertisers than its competitor social networks, according to an October eMarketer study, that placed its 2018 ad revenue at $1.76 billion, an 88% increase from 2017.

Money

On Facebook's run-up to IPO, it generated revenue of $777 million in 2009, $1.97 billion in 2010 and $3.7 million in 2011. Twitter's revenue grew from $28.3 million in 2010, to $106.3 million in 2011 to $316 million in 2012. For Snap, revenue grew from $58.66 million in 2015 to $404.5 million in 2016.

Again, though the smallest, Twitter saw the greatest growth in the years leading up to its IPO, while Snap came in second over the two years preceding its debut.

  • Facebook 376%
  • Twitter 1,017%
  • Snap 590%



For the more important factor, whether a new company can generate profit, the three again differ. Facebook was the only one of the three to start with an annual profit from 2009 to 2011, which grew from $229 million to $1 billion.

Neither Twitter nor Snap had reported a profitable year before their IPOs due to the cost of generating revenue, including fixed costs like maintaining data centers and networking equipment, and employee salaries for sales and research and development.

Snap costs the most to run and has felt the deepest losses, with a $182 million cost of revenue in 2015 that jumped to $452 million in 2016, helping drive net losses of $380.5 million and $515 million for those years. The biggest expense has been in its salaries, benefits and stock-based compensation for its executive and other employees.

IPO

Snap's Thursday IPO sold 200 million shares at $17 each, valuing the company at $23.8 million.

Facebook's IPO priced shares at $38 each, valuing the company at $104.2 billion.

Twitter priced its first 70 million public shares at $16 each, valuing the company at $14.2 billion.

In the year after Facebook's IPO, its stock declined 36.4%. After two years, it gained 60.4%.

Twitter's stock had moved 0.48% a year following its IPO, and declined 40% two years after.

Gurus

Of investors followed by GuruFocus, only four hold shares of Twitter, and three of them cut their stakes in the fourth quarter. Only Jeremy Grantham (Trades, Portfolio) bought shares, increasing his position by 246%.

Thirty-two of those investors own shares of Facebook, including George Soros (Trades, Portfolio), Ruane Cunniff (Trades, Portfolio) and Chase Coleman (Trades, Portfolio), who each started a position in the fourth quarter.

Snap information is not available yet.

Snap also has an overlooked secret weapon in its latest effort, Snapchat sunglasses.

See the 15-year financials for Facebook here and Twitter here.

This article first appeared on GuruFocus.