Why Facebook Inc Rose, Twitter Inc Dropped After Positive Earnings

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When both Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) beat revenue expectations several weeks ago, some investors might have been scratching their heads when Facebook stock was up 14% following the announcement while Twitter lost -24% despite beating expectations.

Engagement, unique content creation keys

In a research note reviewed by ValueWalk, London-based hedge fund RWC points to engagement growth and the value of unique content creation among other issues.

The report, written by Priya Kodeeswaran, who is the manager of the RWC Global Growth Absolute Alpha Fund, compares Twitter Inc (NYSE:TWTR) and Facebook Inc (NASDAQ:FB) to traditional media, noting an interesting primary difference  between the two: the cost of content creation.  Both Twitter and Facebook content creation and aggregation is done for free by their users, a significant benefit when compared to traditional media sources (Who needs those pesky – and expensive – journalists?).  When compared to Twitter, however, Facebook’s content is much more personal, making for a “stickier” web site experience.

RCM facebook users

“While fashions can change quickly, we think that the higher content creation (personal photos, videos, status updates and lifeline) of Facebook Inc (NASDAQ:FB) is ultimately stickier as users have a lot of personal content on their profile locking them into the ecosystem in a way that Twitter does not as it is mostly an aggregator, with minimal original content creation,” the report noted.  “Twitter is often thought of as younger, fully public, with higher immediacy and broader reach but more geared to the immediate consumption of information,” the report noted. “Facebook is theoretically more private, more content creation focused with higher levels of engagement, and the potential for higher relevance and more focused advertising.”

Facebook audience size continues to grow

The report noted Facebook Inc (NASDAQ:FB)’s audience size continues to trend higher especially internationally while more importantly engagement continues to improve to 62% from 57% in 2011. “Last year, Facebook also cracked mobile convincingly both from a usage and monetisation perspective,” and now has 556 million Mobile Daily Active Users of which 296 million only use mobile access the service.

RCM Twitter engagement drops

Twitter Inc (NYSE:TWTR), on the other hand, shows “an almost universal drop in engagement in all its key markets (Figure 3). This has understandably spooked investors especially considering its lofty valuation (higher than Facebook),” the report said.

Facebook is often criticized as having an increasingly “older” demographic, yet RWC points to a key point of differentiation. “While Facebook’s demographics mean that it potentially becomes “uncooler” as it broadens reach and adults take over the medium, they have partially addressed this by buying Instagram and WhatsApp to cater to the younger trendsetters,” the report said.

RWC sees room to grow in social media

RCM Internet trends

Comparing internet and mobile user attention, the advertising spend in these regions actually has room to grow when compared to traditional media, the report noted.  “Overall internet time spent, social networking has taken significant share vs. search and other sites in the last 9 years yet remains substantially underrepresented on a share of budget basis,” highlighting the fund’s optimism in the sector.  

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About the Author

Mark Melin
Mark Melin is an alternative investment practitioner whose specialty is recognizing a trading program’s strategy and mapping it to a market environment and performance driver. He provides analysis of managed futures investment performance and commentary regarding related managed futures market environment. A portfolio and industry consultant, he was an adjunct instructor in managed futures at Northwestern University / Chicago and has written or edited three books, including High Performance Managed Futures (Wiley 2010) and The Chicago Board of Trade’s Handbook of Futures and Options (McGraw-Hill 2008). Mark was director of the managed futures division at Alaron Trading until they were acquired by Peregrine Financial Group in 2009, where he was a registered associated person (National Futures Association NFA ID#: 0348336). Mark has also worked as a Commodity Trading Advisor himself, trading a short volatility options portfolio across the yield curve, and was an independent consultant to various broker dealers and futures exchanges, including OneChicago, the single stock futures exchange, and the Chicago Board of Trade. He is also Editor, Opalesque Futures Intelligence and Editor, Opalesque Futures Strategies. - Contact: Mmelin(at)valuewalk.com

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