Chapter 19

Facebook and Twitter reported very different earnings performance in Q2 of 2015. Facebook stocks increased by nearly 30% in the previous year while Twitter struggled. Twitter’s stock had lost more than 7% from 2014 and more than 33% from its high in April 2015. Since both are social media companies, why such a difference?

Twitter was in transition while it searched for a new CEO, resulting in a company operating without a leader or a strategic plan. Moreover, plans to make the software app more user-friendly had been delayed. Some increases in earnings per share were anticipated by the market, but this was overshadowed by the key performance metric of growth for this industry, the Average Monthly Active Users (MAUs), which fell short of analysts’ expectations.

Facebook on the other hand had 4.7 times Twitter’s user base and had been increasing its earnings per share by giant leaps, making this company the eighth largest company in America by the market. Growth is expected to continue, even if at a slower rate typical of companies that reach giant-size proportions. Moreover, Bank of America has added Facebook to its list of top investment ideas due to the firm’s improved advertising targeting through Instagram, its video campaigns, and its growth of new software platforms such as Messenger. Facebook has also leveraged its investments in ramping up sharing instant news articles and following public figures campaigns (areas that were once dominated by Twitter). Both developments have resulted in increased followers and have been very successful.

Time will tell if Twitter can make up for its lost market position.

(Source: Boorstin, 2015)