Twitter (TWTR) and Meta Platforms (META -0.52%) became two of the most talked-about social media companies in recent months.
Twitter's drama started in early April after Elon Musk took a 9.2% stake in the company. Shortly afterwards, Musk launched a hostile bid to acquire all of Twitter at $54.20 a share in a $44 billion deal. Twitter accepted the deal after initially adopting a "poison pill" defense against Musk's offer.
But over the past month, Musk tried to back out of the deal by accusing Twitter of failing to provide adequate information about its spam and bot accounts. As of this writing, the deal is still in limbo, and Twitter's stock price remains about 26% below Musk's "best and final" offer.
Image source: Getty Images.
Meta's downfall started in February after it provided dismal guidance for the first quarter of 2022. Its actual first-quarter report in April was lackluster, and the company continued to blame its recent slowdown on Apple's (AAPL 1.27%) iOS update and competition from ByteDance's TikTok.
Meta also remained committed to burning billions of dollars each year on its messy metaverse efforts, and the recent resignation of chief operating officer Sheryl Sandberg stunned investors. Snap's sudden reduction of its second-quarter guidance in late May, which it attributed to a deteriorating macro environment for digital ads, raised even more red flags.
That's why Twitter and Meta have both been terrible investments over the past 12 months. Twitter's stock has tumbled more than 30% during that period, while Meta's stock has plummeted over 40%. But could either of these stocks bounce back over the long term?
Twitter might grow faster than Meta this year
Twitter's revenue rose 37% to $5.08 billion in 2021. Its total number of monetizable daily active users (mDAUs) increased 13% to 217 million.
In the first quarter of 2022, its revenue grew 16% year over year to $1.2 billion. Excluding its sale of MoPub from both periods, its revenue increased 22%. Its mDAUs grew 16% to 229.0 million.
Meta's revenue rose 37% to $117.9 million in 2021. The total number of daily active people (DAP) across its entire family of apps (Facebook, Messenger, Instagram, and WhatsApp) increased 8% to 2.82 billion.
But in the first quarter of 2022, Meta's revenue only grew 7% year over year to $27.9 billion as the aforementioned headwinds throttled its growth. However, its family DAP still rose 6% to 2.87 billion.
Analysts expect Twitter's revenue to rise 16% to $5.88 billion this year, but they only expect Meta's revenue to increase 7% to $126.6 billion. We should take those estimates with a grain of salt, but that gap likely reflects Twitter's lower exposure to Apple's iOS changes (since it also relies heavily on first-party and contextual data for ads) and direct competition from TikTok's videos.
Twitter might generate stronger near-term profit growth
Twitter posted a net loss of $221 million in 2021, but that red ink was mainly caused by a one-time litigation charge of $766 million. On an adjusted basis, which excludes that charge and other one-time expenses, it generated a net profit of $165 million, or $0.20 per share.
Analysts expect Twitter's adjusted earnings per share (EPS) to surge 730% to $1.66 this year as it laps those litigation expenses and realizes the gains from its $1.05 billion sale of MoPub to AppLovin. In 2023, they expect Twitter's revenue to rise 22% to $7.15 billion but for its adjusted EPS to dip 22% against those tough year-over-year comparisons.
Meta's net income increased 35% to $39.4 billion, or $13.77 per share, in 2021. However, analysts expect its EPS to dip 14% this year as it ramps up its spending on its short video platforms (Facebook Watch and Instagram Reels) and continues to expand its Reality Labs business.
But in 2023, analysts expect Meta's revenue and earnings to grow 17% and 18%, respectively, if those investments pay off. Therefore, if you have faith in CEO Mark Zuckerberg's turnaround plans, then 2022 might merely be a short-term speed bump for the company.
The valuations and verdict
Twitter is trading at a steep discount to Musk's offer, but it still can't be considered a bargain at 41 times forward earnings. Its $6.3 billion in cash, cash equivalents, and marketable securities could also limit its ability to expand through investments and acquisitions.
Meanwhile, Meta has become the cheapest FAANG stock at just 16 times forward earnings, which suggests investors don't have much faith in its ability to address Apple's platform changes, counter TikTok's growth, or rein its metaverse spending. However, Meta was still sitting on $43.9 billion in cash and marketable securities last quarter, so it can easily afford to buy additional companies or switch gears to address those challenges.
Therefore, Twitter might initially seem like the better buy, but I believe Meta's larger audience, better diversified portfolio of apps and services, stronger balance sheet, and lower valuation all make it a more compelling long-term investment. As for Twitter, its willingness to sell itself to Musk -- who is now trying to hastily back out of the deal -- seems like a bright red flag.
