Why the Social Media War Has Ended in a Whimper

By: Money_Morning

Michael A. Robinson writes: Since appearing on Fox Business last week to talk about three major tech companies – Facebook Inc. (Nasdaq: FB), Twitter Inc. (NYSE: TWTR) and Amazon.com Inc. (Nasdaq: AMZN) – I’ve been getting a ton of questions about what the future really holds for these companies.

Especially Facebook and Twitter.

Those are probably the two best-known players in social media right now.

But after releasing their third-quarter earnings reports just days from each other, it’s evident that their fortunes are starting to diverge.

While Facebook’s fortunes are on the rise, Twitter is choking.

Today, I’ll tell you why…

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The tale of these two companies boils down to one key factor – user growth.

In social media, user growth is the be-all and end-all.

Both Facebook and Twitter pour millions of dollars into growing their user bases.

But while Facebook just announced its ninth consecutive quarter ahead of market expectations, Twitter is struggling.

Despite beating or matching most analysts’ expectations in its Oct. 27 quarterly report, Twitter reduced its fourth-quarter guidance – and got slammed. In after-hours trading that night, Twitter stock began plummeting, and has fallen a full 17% since then.

The micro-blogging site is losing some of its steam as the year closes out.

And it’s all happening because of one thing – ads.

The San Francisco-based company isn’t fully exploiting its Twitter Ads space.

And because of that, Twitter doesn’t have the same monetization opportunities that Facebook is capitalizing on.

In fact, out of Twitter’s estimated 4.5 million small-business accounts, only several thousand have used Twitter Ads.

Compare that to Facebook. Of the Menlo Park, California-based company’s estimated 30 million small-business accounts, nearly 2 million are advertisers.

Twitter CEO Dick Costolo is still shoring up the company’s operations in order to sell ads and grow the user base . In other words, this is a company still finding its sea legs.

That’s why I’m so bullish about Facebook.

I first recommended Facebook to you back in March, and my opinion of the company hasn’t changed.

Facebook is a mobile advertising juggernaut.

In fact, Facebook announced in its third-quarter report on Oct. 28 that advertising revenue was up 64% from the same quarter one year ago to $2.69 billion.

The real strength to this social media tycoon is its powerful earnings – up 72% year over year – on top of increasing numbers of user. Facebook reported 40 million new subscribers last quarter alone and nearly one-fifth of the world’s population signing in at least once a month.

These factors indicate that Facebook is a company that has the steam to keep moving and the foundation to come out of any market dips.

That’s just the sort of heft that Twitter isn’t capable of right now.

This isn’t a death sentence for Twitter. The company is still the most heavily trafficked social media site out there.

On average, Twitter users send out 500 million “tweets” per day – that’s nearly 6,000 tweets per second.

It just doesn’t have the momentum to pack a punch when it comes to revenue and user growth.

That’s why Twitter investors are hoping its recent partnership with IBM Corp. (NYSE: IBM) will be the jump-start the stock needs to gain back some of those losses.

Twitter and IBM announced yesterday that they have joined forces in the software analytics market. Twitter plans to integrate its data into Watson, IBM’s “cognitive” Big Data technology.

The verdict is still out whether this partnership will help boost Twitter high enough to stand up next to Facebook, but I’m certain of one thing – Twitter is heading for a rocky short-term future.

It’s going to take three or four more quarters to see how all this is going to shake out.

Source : http://strategictechinvestor.com/2014/11/social-media-war-ended-whimper/

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