Is Twitter Inc the Next Facebook Inc?
Since they entered the public market, Twitter Inc (NYSE:TWTR) and Facebook Inc (NASDAQ:FB) have had very different experiences. FB stock has soared to the heavens, while TWTR stock stumbled through an endless series of missteps.
But Twitter is currently trying out a few things that could send the stock skyrocketing. In fact, the company’s recent strategy looks oddly similar to Facebook’s as Twitter is breaking into the publishing and video businesses.
Facebook built a feature that works with publishers to open articles within the app. Twitter followed suit, adding a similar feature to its app. Facebook launched a video platform (including livestreaming features) that posed a challenge to YouTube’s dominance. So Twitter launched its very own video platform called Periscope.
Both companies are doing the same stuff. Sure, Facebook is several times larger, but it doesn’t naturally follow that Twitter’s ventures have failed. Periscope has shown significant growth in the 12 months it’s been active.
There were over 200 million broadcasts in 2015, and users watched more than 110 years’ worth of video every single day. That is a remarkable achievement, but investors don’t really care. They only have eyes for one number: Twitter’s flagging subscriber growth. (Source: “Year One – Dear Periscope Community,” Periscope, March 28, 2016.)
Investors see it as proof of Twitter’s shrinking relevance, a warning sign that TWTR stock is in danger. This lack of subscriber growth is what cost the firm 68.7% of its market capitalization over the last 12 months. It’s also complete garbage.
Twitter may not be able to match Facebook in scale, but it has more than 300 million loyal users. There are also distinct niches on Twitter that don’t really exist on Facebook. Journalists, for instance, love using Twitter. They can keep track of events in real time while cracking wise with their friends and colleagues.
These little subcultures are a feature that Twitter hasn’t really taken advantage of, but that’s going to change. Advertisers and content creators are always looking for dependable audiences they can target specifically.
Twitter’s problem was that its features hadn’t been combined into an attractive enough product for advertisers and content creators to justify the expense. They needed a clear vision to complete the product, which is why they brought Jack Dorsey back.
If there’s anyone who can successfully integrate all those parts into a cohesive product, it’s Dorsey. It is his company after all. He’s not the best manager in the world, but the guy knows his technology products. He could finally turn TWTR stock around.
What’s funny is that Facebook was once in a similar predicament. FB stock had a horrendous start to life on the exchange. A few days before its initial public offering (IPO), Goldman Sachs, Morgan Stanley, and the rest of the underwriters decided to raise the firm’s target price, effectively throwing a wrench in market expectations.
They decided $35.00 to $38.00 was a more suitable range than $28.00 to $35.00. It was a terrible move that took the wind out of Facebook’s sails. Its shares opened at $38.00 way back on May 18, 2012, but by the end of the summer, FB stock was trading at $18.06. (Source: “Why did Facebook’s shares fall after its initial public offering?” Market Realist, January 14, 2014.)
Having lost more than half of its market capitalization, the stock was considered a dud. No one wanted to touch it, but then the company’s founder, Mark Zuckerberg, managed to integrate new features into Facebook that he could monetize.
Now that Twitter has its founder back in the driver seat, we could be headed down the same road that led FB stock to triple-digit gains.