Twitter Inc (TWTR) Downgrade Benefits Facebook Inc (FB)


Twitter Inc (NYSE:TWTR) dropped from high near $70 yesterday to $65 this morning after Morgan Stanley (NYSE:MS) analyst Scott Devitt said the firm may lose online advertising revenue to larger rivals such as Facebook Inc (NASDAQ:FB).

Twitter downgrade gives Facebook a bump

Twitter Inc (NYSE:TWTR) stock price doubled from its initial public offering price of $26 two months ago.  Facebook Inc (NASDAQ:FB) initially priced its IPO at $38 per share, among the richest IPO’s in history, and the stock initially lost close to half its value before rebounding.  Facebook closed yesterday just above $54 but rocketed to $57 on the Twitter downgrade announcement.

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Devitt’s investment thesis, reported in Marketwatch, is that Twitter Inc (NYSE:TWTR) may not fare as well as its larger competition in regards to online advertising competition.  “We think it is inherently more complicated to understand how to get the most out of Twitter Inc (NYSE:TWTR) compared to Facebook’s service, which is easier to use,” Devitt said in a research report.  In the report Devitt cited statistics from a Pew Research Center report which showed 90% of Twitter users also use Facebook, only 22% of Facebook’s users also use Twitter.

Trend analyzers give weight to youth market

Devitt’s call on Twitter Inc (NYSE:TWTR) comes as analysts continue to note that younger people continue to find Facebook Inc (NASDAQ:FB) passé.  Firms that analyze online trends often consider younger audiences more of an indication of the future technology trends than older users.  Twitter is also has a better grasp of the mobile market than does Facebook Inc (NASDAQ:FB) and the value proposition for advertisers is said to be better because Twitter gets paid for engagement rather than selling views and clicks, as is the case with Facebook.  Twitter’s administrative overhead – the cost of support personnel, lawyers, human resource staff, etc. – makes up 10% of Twitter Inc (NYSE:TWTR)’s overall cost, while it made up 14% of Facebook’s cost, according to a report in Bloomberg.