Twitter (NYSE 🙂 had a remarkable run last year. In the face of extreme negativity over social media shares, the company outperformed its main rival Facebook (NASDAQ :), and got 20% while Facebook deposited 26%.
But that period of outperformance is losing its steam. After the rally last year, the Twitter stock increased by 8% in 2019, while Facebook has a lead of more than 20%. This divergence is a sign that the determination of the Twitter bulls is becoming weaker and investors are likely to see more value in the company's much larger rival
Despite the slow move of Twitter higher, we think that Twitter is better positioned to withstand the sales pressure that occurs after every negative event. Last week, for example when the Facebook stock bore the biggest burden of sales pressure after live streaming of a massacre in New Zealand, with 2.5% on Friday, Twitter shares hardly moved, leaving the week 0.6 % ended at $ 31.22. The stock fell yesterday by 0.5% to $ 31.08 versus the loss of Facebook by another 3.3%.
Twitter weekly chart
In our opinion, Twitter plays smart in this environment where regulators, politicians and the general public investigate social media companies after a series of data breaches and political manipulation of these platforms. The company has offered investors transparency by adopting an open approach to problems within its network. Jack Dorsey, CEO since last summer, has been warning investors that his platform will not see user growth if the company undertakes a huge cleanup operation, removes fake accounts and puts an end to hateful language.
Twitter & # 39; s aggressive cleansing pays off
The results of this aggressive cleansing were visible in the company report, when advertising revenues increased by 23% compared to last year to $ 791.4 million. The company was also able to demonstrate that with the smaller base of its daily active users, it can still build a sustainable business that investors can trust in this highly dynamic environment for social media companies.
Twitter's annual result in 2018 rose to $ 453.3 million compared to just $ 38.7 million a year earlier, helped by more advertising engagements that increased by 33% in the last quarter. Last summer, the company informed investors that it had identified nearly 10 million doubtful accounts per week and placed all accounts through a security check.
What investors did not like was Twitter, who warned that this clean-up campaign will continue to put pressure on spending, which is likely to increase by 20% in 2019.
Last week was probably one of the most difficult for Facebook. & # 39; The world's largest social network was confronted with the longest outages in its network and services. It was also confronted with the start of a criminal investigation into its data agreements with other companies and saw two key figures leave. And if that wasn't enough to shake investor confidence, the massacre of 50 people in New Zealand live on Facebook led to almost universal condemnation and indignation.
Bottom Line
It is becoming increasingly difficult to choose winners and losers in the universe invested in social media, given the nature of the challenges these companies face. Social media platforms are in a constant state of fire fighting, while their shares remain very vulnerable to negative events.
What distinguishes Twitter from its colleagues in this environment is the aggressive strategy to clean up its network and adopt a more transparent way to handle challenges. This approach may not lead to higher user growth in the short term, but the initiative and efforts to do well will give the company a more solid foundation in the long run.
