Twitter (NYSE: TWTR) and Snap (NYSE: SNAP) are two of the largest social media platforms after Facebook (NASDAQ: FB). If you ask any millennial today, the chances of them being active on Facebook could be low. Since the onset of the coronavirus pandemic, it’s undeniable that more people have been spending more time on social media. For this reason, investors have been looking for social media stocks to buy in the stock market today.
According to Omnicore, 8 out of 10 Americans are on social media in 2020. With such a large user base, it is no wonder some of the best social media stocks to watch in the stock market today have seen such impressive growth. This megatrend is unlikely to subside anytime soon. With the coronavirus pandemic still pretty much restricting free movements across states or countries, people are still going to social media to connect with one another.
While TWTR stock and SNAP stock rallied nearly 80% and 200% respectively in 2020, it is by no means a suggestion that things will be equally rosy going forward. Both companies face different tailwinds and headwinds this year. It’s worth pointing out that Twitter and Snapchat have partnered to allow users to share tweets via Snapchat. Nevertheless, their product offerings and target audiences are not exactly the same. Now, both companies have reported strong earnings. Let’s take a closer look to see which social media stock is the better buy right now.
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Twitter Racks Up Its Second $1 Billion Quarter
Twitter’s stock was up slightly in after-hours trading on Tuesday after the company reported its fourth-quarter earnings. This came after the social media company beat Wall Street’s earnings and revenue expectations. Revenue grew 28% year over year to $1.29 billion, above the $1.19 billion estimates from Wall Street.
It was a strong quarter for digital advertising companies in general, which were buoyed by the push toward online shopping during the pandemic. But for Twitter, the company was also in the midst of some controversies. This came after it kicked former President Donald Trump off its platform a month ago. While some were expecting a plunge in users following the Trump ban, Twitter CEO Jack Dorsey told analysts, “We’re a platform that is obviously much larger than anyone topic or any one account.”
On the surface, its fourth-quarter report was smashing, making it seem smooth sailing. Of course, looks can be deceiving. The company focused its attention by sharing the outlook for Twitter in 2021 without much political context. Most importantly, what investors should really take note of is the soft guidance from the company. This suggests that the previous growth posted by the company in 2020 was about as good as it gets. Does that mean that the stock will only go down from here? Not exactly, here’s why.
New Subscription Model Could Become Twitter’s New Growth Driver
After reporting another stellar quarter, Twitter continues to explore the addition of subscription services and other paid features to supplement its advertising revenue. The subscription model, with the code name “Rogue One”, could be a more durable and consistent model than advertising. But ditching the advertising model won’t be an easy process. The subscription model has to be affordable and appealing before users could be comfortable with its transformation. But how unique will the subscription model be? This is a question that Twitter must answer before making any moves.
“These may include subscriptions and other approaches that will give people and businesses of all sizes on Twitter access to unique features and enhanced opportunities for content creation, discovery, and engagement. While we’re excited about this potential, it’s important to note we are still in very early exploration and we do not expect any meaningful revenue attributable to these opportunities in 2021. Given the massive opportunity to build upon our strengths, our main focus continues to be on growing our ads business,”- Burce Falck, Revenue Product Lead of Twitter.
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Snap Inc.
Last week, Snap reported strong fourth-quarter earnings which topped Wall Street’s expectations on all metrics. Be it, users, revenues, or profits, the company appears to be firing on all cylinders. Revenue grew 62% from a year ago to $911 million. That was $56 million higher than estimates.
It was also the company’s highest quarterly growth in 3 years. Besides, daily active users increased by 22% to 265 million. That was not only higher than the previous quarter’s growth but also exceeded the company’s guidance of 18%. As a result, SNAP stock popped to all-time highs.
“Our team has worked tirelessly to help people stay close with their friends and family even while they are physically apart, and we’re proud of the strong results we delivered for our advertising partners this quarter and over the full year. We delivered our first full year of Adjusted EBITDA profitability and, as we look towards the future, we’re excited to build on our investments in augmented reality, mapping, and content to drive our ongoing growth,” – CEO Evan Spiegel
From a social media underdog to a rocket ship in social media networks, Snapchat is being driven by relentless innovation. Thus, as the most innovative player in a hyper-growth industry, Snap projects to sustain robust growth momentum for a lot longer. It’s no doubt that Snap is still Gen Z’s favorite platform, putting it ahead of TikTok and Instagram. Snapchat is expanding its augmented reality (AR) ecosystem with its Snap Kit and its in-app video games through Snap Games.
“Snap is a rocket ship right now because it has broadened Snapchat’s user base by evolving as a platform. Snapchat isn’t just a way to share with your friends and family — it’s become a mainstream entertainment channel. From AR and Lenses to Discover and Spotlight, the company is constantly innovating with both technology and content to make itself stickier and more interesting to a wide audience. That’s an attractive value proposition for advertisers, who have a variety of inventory types and features they can tap into and see great ROAS from their campaigns – as much as 10x, according to our data,” said Boaz Cohen, SVP of Business Ad Development, StitcherAds.
TWTR Stock Or SNAP Stock?
By and large, both social media companies continue to find new ways to attract more users to their platform. For Twitter, the concern of slowing user growth may be imminent. That poses a threat to the company’s growth. Should the potential subscription model work in favor of the company, then this new source of revenue could serve as a catalyst for its future growth, while its ad business is still predominantly the growth driver.
Meanwhile, Snapchat has been showing strong growth in terms of viewers. It is also gaining a lot of overseas users. Not to mention it could also benefit from Twitter’s mistakes. With all the chaos that’s happening with Facebook and Twitter for its hate speech and misinformation, Snap appears to be more insulated from the political and regulatory headwinds.
To top it all off, its growth potential in video games and AR could power SNAP stock to greater heights in the long run. Certainly, there is every reason to believe that Twitter could pull off newer monetization models. But on the flip side, if you are looking for a strong track record of growth, it appears to me that SNAP stock is the more attractive option for the time being.
