Facebook Inc (NASDAQ:FB), Twitter Inc (NYSE:TWTR) and LinkedIn Corp (NYSE:LNKD) are undoubtedly the world’s largest social networking platforms. Businesses are increasingly turning to social media for brand building, hiring and customer engagement. Facebook is far bigger than the other two, and has more user engagement. That doesn’t mean LinkedIn and Twitter have no growth prospects, though. Financial services firm Crisp Idea discusses each company in greater detail to identify their strengths and weaknesses.
Facebook Inc (FB)
Facebook Inc (NASDAQ:FB) has overcome its biggest challenge. Not too long ago, Wall Street questioned its ability to monetize mobile users as more people started shifting from PCs to smartphones and tablets. In Q4, 2013, the Menlo Park-based company generated 53% of its total advertising revenue from mobile. It’s hard to match the might of Facebook, which boasts of more than 1.2 billion monthly active users. The recent acquisition of WhatsApp will strengthen its position in mobile advertising. The purchase has also evaded a big threat it was facing. WhatsApp had begun to overtake Facebook on mobile.
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The purchase of WhatsApp led to the depletion of cash reserves and dilution of stock. Investors have to have a bit more patience from the monetization perspective. Crisp Idea says Facebook Inc (NASDAQ:FB) offers an excellent opportunity for investors who have a three year outlook. It has a 2016 price target of $98, which is a compounded annual return of 13%.
Twitter Inc (TWTR)
Twitter Inc (NYSE:TWTR)’s story has not been as rosy as Facebook Inc (NASDAQ:FB). Crisp Idea says that the stock is overvalued with Price/Sales ratio of more than 18 times and EV/Sales ratio above 15. The current hype of social media services reaching a billion users has prompted analysts to come up with eyeball metrics that we saw during the 1999-2000 dot-com boom, which busted a few months later.
Twitter Inc (NYSE:TWTR)’s valuation looks moderate in the context of this hype, but growth in its number of monthly active users is slowing down at an alarming rate. Twitter’s business model clearly lacks the user engagement Facebook Inc (NASDAQ:FB) provides, and the messaging communication that WhatsApp offers. Crisp Idea says Twitter will still grow on the basis of its unique business model and penetration. But even that growth doesn’t justify current valuations.
The financial services firm has a Sell rating on the stock with a 2015 price target of $45. But for long-term investors, $45 could be an attractive entry point because the growth would have overtaken valuation worries by that time.
LinkedIn Corp (LNKD)
Crisp Idea finds LinkedIn Corp (NYSE:LNKD) attractive, though its valuation is stretched. The company has a market value of about $25 billion. Its stock trades at a 16x Price to Sales multiple and a whopping 900 times Price to Earnings multiple. Another negative aspect is LinkedIn’s predatory focus on membership revenues, and its path of making the service more restrictive for those who do not upgrade memberships.
However, the Mountain View-based company has a strong network of professionals, and they benefit by sticking to the website. Its positioning as a recruitment ground could be broadened in the future. Crisp Idea says LinkedIn Corp (NYSE:LNKD) has the potential to become a trusted sales channel in the enterprise and SMB sales space. The company can also monetize its user base by launching new services with a variety of partners. Crisp Idea has a 2016 price target of $550, representing a 26% CAGR on current price.