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The usage of social media surged last year, as more people stayed at home due to the pandemic.
According to an eMarketer report from June, adults are expected to spend 1 hour and 35 minutes each day on social media. Despite that, this report expects that Twitter will grow its users by only 0.2% this year, while Facebook is projected to experience its slowest growth this year, at 0.8%.
Using the TipRanks Stock Comparison tool, let us compare two social media companies, Facebook and Twitter, and see how Wall Street analysts feel about these stocks.
Yesterday, Facebook reported Q2 results that blew past Street estimates. The social media giant posted revenues of $29.1 billion, a jump of 56% year-over-year, and topping consensus estimates of $27.82 billion. Diluted earnings came in at $3.61 per share, beating analysts’ estimates of $3.02.
The company stated in its press release that advertising revenues will be largely driven by the year-over-year rise in ad price during the rest of the year. In addition, FB stated that it expects the year-over-year revenue growth rate to “decelerate significantly” in Q3 and Q4 on a sequential basis.
FB added in its press release, “We continue to expect increased ad targeting headwinds in 2021 from regulatory and platform changes, notably the recent iOS updates, which we expect to have a greater impact in the third quarter compared to the second quarter.”
Following the results, Evercore ISI analyst Mark Mahaney reiterated a Buy and raised the price target from $400 to $450 on the stock. According to the analyst, FB is focused on three key areas including Creators, building the next Computing platform, and Commerce.
Mahaney added that FB’s deep pockets, compared to its competitors like Snap (SNAP), “allows them to spend $1B on creator incentives over the next few years while making monetization tools free until 2023 – a smart strategy for accumulating quality content.”
According to the analyst, Facebook’s CEO, Mark Zuckerberg, views the company as transitioning from a social media company to a Metaverse one. Mahoney quoted Zuckerberg as describing the Metaverse as a “virtual environment where you can be present with people in digital spaces.”
Looking at Zuckerberg’s Metaverse vision, Mahoney came “away with slightly greater conviction around our estimate of $5- 6B in annual AR/VR investment spend levels.”
Furthermore, the analyst added that FB is “currently trading at 17X ‘22E EPS after adjusting for cash and AR [augmented reality]/VR [virtual reality] losses – which seems an extremely attractive valuation level given our close-to- 30% EPS CAGR outlook (’20-23E).”
Turning to the rest of the Street, consensus is that FB is a Strong Buy, based on 16 Buys, 3 Holds, and 1 Sell. The average Facebook price target of $400.29 implies an approximately 7.2% upside potential to current levels.
Twitter posted strong Q2 results, with the social media company’s revenues surging 74% year-over-year to $1.2 billion, beating the consensus estimate of $1.06 billion. Adjusted earnings came in at $0.20 per share, up 45.5% year-over-year, surpassing Street estimates of $0.07 per share.
Meanwhile, Twitter’s average monetizable daily active usage (mDAU) jumped 10.8% year-over-year to 206 million.
For 2021, TWTR expects total revenues to rise faster than its expenses, “assuming the global pandemic continues to improve and that we continue to see modest impact from the rollout of changes associated with iOS 14.5.”
For Q3, revenue is anticipated to be in the range of $1.22 billion to $1.3 billion. Operating income on a GAAP basis is expected to range between a loss of $50 million and a break-even situation.
Following the Q2 results, Wells Fargo analyst Brian Fitzgerald reiterated a Hold rating, and raised the price target from $65 to $82 on the stock. The analyst remained “cautiously optimistic that iOS changes will continue to have a modest impact, as TWTR is a scaled platform with 1P data and expanding targeting and optimization toolsets and stands to benefit.”
Here, the analyst is referring to Apple’s (AAPL) Identifier For Advertisers (IDFA) that came into force this year with the launch of Apple’s iOS 14.5. This development will result in app developers being unable to track a user’s IDFA, if a user opts out of sharing their privacy details while downloading an app from AAPL’s app store.
Fitzgerald pointed out the key positives from the Q2 results, such as ad products like Mobile Application Promotion (MAP) and Ads manager. In Q2, TWTR launched a playable ad pilot for MAP advertisers that could help advertisers of mobile gaming gain new customers through a full-screen, interactive ad.
The company’s Ads manager has now 175,000 new city locations for location-based targeted advertising, resulting in a seven-fold rise in daily revenues in Q2.
Indeed, Twitter had stated in its shareholder letter that the 87% year-over-year rise in advertising revenues was driven by improvement in its brand and direct response (DR) advertising products and “a broad increase in advertiser demand.”
According to Fitzgerald, the two key concerns for the stock remained the possible slowdown in mDAU in the second half of this year, and the impact of the iOS App Tracking Transparency (ATT).
When it comes to mDAU, Twitter’s mDAU in the U.S. has stayed flat or grown sequentially by one million over the last four years in Q3. As a result, TWTR expects its mDAU in the U.S. in Q3 to remain flat sequentially.
While analyst Fitzgerald acknowledged that the impact on revenues in Q2 due to ATT was lower than expected, there was still uncertainty regarding the long-term impact.
Turning to the rest of the Street, consensus is that TWTR is a Moderate Buy, based on 10 Buys, 15 Holds, and 2 Sells. The average Twitter price target of $73.43 implies an approximately 5% upside potential to current levels.
While analysts are bullish about FB, they are cautiously optimistic about Twitter. Based on the upside potential over the next 12 months, Facebook does seem to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.