by Adam Fraser
Floating on the stock exchange, like anything, has its pros and cons. Raising capital and increased profile are positives but being beholden to market expectations and the pressures of quarterly reporting is not everyone’s cup of tea. As an interested observer of the social media industry however, listings are a huge positive as it means the release of lots of public info about some key players (Facebook, Twitter, LinkedIn).
Facebook and Twitter announced quarterly results this week (investor packs here and here), providing a cornucopia of info and insights about how these 2 behemoths are tracking. So what did we learn? Here are 10 high level takeways:
- Facebook is making LOTS of money (US$512m this quarter). Twitter – not so much. In fact Twitter is yet to post a profit, recording a loss of US$162m for the quarter which is actually a higher loss than a year earlier.
- Both platforms are still growing their users numbers. Facebook now has 1.44bn monthly active users (MAUs) – 13% higher than a year ago. Twitter’s MAUs also grew to 302m , which is 18% higher than a year earlier. Given its size, Facebook’s growth rate is impressive. Twitter’s rate of growth is declining which is of concern to analysts.
- Facebook has successfully morphed into a mobile platform from its desktop heritage. 1.25bn of its MAUs are using a mobile, of whom 581m ONLY access Facebook using a mobile. This is an impressive transformation from 24 months ago. when only 189m of Facebook’s then 1.1bn MAUs were mobile only. 1 in 5 mobile minutes in the USA are now spent on either Facebook or Instagram.
- Facebook’s revenue topped $3.5bn in the quarter. Lets me say that again – over $3.5bn in a single quarter. This is a whopping 42% higher than the equivalent quarter a year ago. Impressive. Forget any image of a soft and cuddly social network, this is a very serious media business and something of a money printing machine at present. Twitter’s revenue for the quarter was $436m, approximately 12.5% of Facebook’s. Often quoted in the same breath, this number alone demonstrates how much larger and more powerful Facebook is compared to Twitter at present.
- As traditional media businesses desperately struggle for business models not reliant solely on advertising, social media platforms are keeping it simple (and traditional). 94% of Facebook’s revenue and 89% of Twitter’s revenue came from advertising. Big data may one day be a key revenue driver but at present advertising is the business model of choice. All of Facebook’s products are tracking well but Twitter’s new direct response ad product is not performing as well as expected, which is one of many concerns for analysts
- Interestingly, Facebook remains a more North America-centric business. 49% of its revenue comes from USA and Canada, while Twitter derives only 21% of its revenue from the USA.
- Innovation and development remain important to both platforms. Twitter invests 43% of its revenue on R&D, while Facebook spends an impressive (given its size) 30%. These are NOT companies resting on their laurels. The need to keep innovating and evolving in an extremely fast moving macro sector is clearly obvious to both businesses.
- Video is becoming an increasingly important part of Facebook’s play-book – both as a means of engagement for its users, but also as a driver of advertising revenue. CEO Mark Zuckerberg confirmed Facebook has achieved more than 4bn daily video views (YouTube beware), while COO Sheryl Sandberg confirmed more than 75% of all video views are now on a mobile device. Twitter CEO Dick Costolo talked of his high hopes for Twitter’s new native video product as well as Vine (6 second clips) and Periscope (live streaming). Periscope has started well with 1m users logging in in the first 10 days of its launch.
- Facebook’s messaging business(es) are powering on with 45 billion (yes billion) messages sent daily. There are no plans to merge Facebook Messenger (600m+ MAUs) and WhatsApp (800m+ MAUs) at this stage as Zuckerberg believes they deliver against distinct use cases
- Ignoring the strength or otherwise of the absolute numbers, both companies “disappointed the Street” – in other words stock market investors had forecast (and based stock buying decisions) on stronger numbers. Facebook shares were down 2% but Twitter was smashed with a 20% decline in a single day. Facebook got a wrap on the knuckles, Twitter was effectively hit with tonne of bricks.
In theory the ownership structure of a business should be an independent issue from its business strategy but the current scenario appears to be one where being listed could flow into strategic decisions by Twitter. Management are feeling the full brunt of pressure from investors who are demanding faster user growth and stronger profitability. If this leads to rushed or clumsy decisions re advertising products (and their preponderance in the timeline), this could impact the user experience, which in turn of course impacts financial performance if user growth declines (something I have previously discussed).
If I had to summaries in a line – the Facebook juggernaut motors on (its monthly user base is now larger than the population of China) but the jury remains firmly out on Twitter’s ability to monetise to anything like the extent priced in by the market. Stock market analysts are now concerned advertisers have hit an “ROI wall” and cant see the returns on investing in Twitter.
Whilst there are signs of promise in alliances with Google and Apple, and Periscope is showing potential, some challenging times could be ahead for Twitter. The balancing act between short term monetisation and user experience looks like a difficult terrain to navigate and the stock market can be an unforgiving environment to try.