Twitter and Facebook Shares Take Different Paths

Twitter Inc (NASDAQ: TWTR) decided that President Trump’s tweets needed to be fact-checked.  Facebook (NASDAQ: FB) decided that it should not do the same with posts on its platform. The President elected to sign an executive order that might allow social media companies to be regulated or shuttered.  Well ahead of these actions, Twitter’s prospects were troubled while Facebook shares have rallied. The reasons for the moves have almost nothing to do with the public battle at all.

As much of the stock market has been rocked as a reaction to the spread of COVID-19, it has come back enough so that the S&P 500 is higher by nearly 3% in the last three months. Twitter, on the other hand, is down almost 7%. Facebook is higher by 17%.  The shares of the social media company are near an all-time high.

A look at each company’s earnings explains the reason for the different directions. Investors fear that Facebook, Alphabet (NASDAQ: GOOGL), owner of Google, and (NASDAQ: AMZN) will continue to dominate the online ad market and crimp any meaningful growth or bottom-line improvement by smaller media or social media companies.

In the most recent quarter, Facebook’s revenue rose to $17.7 billion. Net income rose 102% to $4.9 billion. At the current rate of growth, Facebook may have $100 billion in revenue next year, depending on the effects of the pandemic.

Twitter’s revenue barely grew last quarter to $807 million from $787 million in the quarter a year ago. It lost $8.4 million, compared to net income of $190 million the year before.

The market’s view of social media companies is that they should be engines of growth as more and more people use them to communicate. Twitter has broken that bond with investors, and, consequently has paid a price.

Twitter’s problem is not about headlines. The problem, rather, is driven by its lack of expansion.