Social media companies such as Meta (FB) and Twitter (TWTR) remain popular among investors and for good reason. These entities have become a household name as they generate consistent profits, grow top-line at a stellar pace, and enjoy high-profit margins.
Social media platforms generate a majority of sales via ad revenue and this trend is likely to continue in the future. In fact, the shift towards digital continues to gain pace globally, allowing Meta and Twitter to benefit from secular tailwinds.
Keeping these factors in mind, let’s see which of these two stocks, FB and TWTR, is currently a better investment in Q2 of 2022.
Meta
One of the world’s largest companies by market cap, Meta is valued at $606 billion. Formerly known as Facebook, Meta stock is now down 40% from all-time highs as Wall Street was concerned over Apple’s privacy changes which would impact ad sales in the future. Additionally, the ongoing sell-off surrounding growth stocks dragged Meta lower in Q1 of 2022.
Meta is the world’s largest social media platform with a monthly active user base of 3.6 billion, an increase of 9% year over year. Its sales were up 37% at $118 billion and net income soared by 35% to $39.4 billion in 2021. Its free cash flow also rose by 67% to $38.4 billion last year.
While Meta’s revenue growth will decelerate, analysts expect sales to rise by 12% to $132.2 billion in 2022 and by 17% to $155 billion in 2023. Comparatively, its adjusted earnings are forecast to expand at an annual rate of 18.5% in the next five years.
In 2021, Meta plowed in $10.2 billion on Reality Labs which is its metaverse business. While this number spooked investors, Meta has enough liquidity to spend money on the next big thing for social media.
Twitter shares rose by 25% in a single trading session on Monday after it was revealed Elon Musk owns a 9.3% stake in the company. Despite the recent uptick, Twitter shares are still down 38% from all-time highs.
In Q4 of 2021, Twitter increased revenue by 22% year over year. The growth was attributed to ongoing product improvements, strong demand from advertisers, and strong execution by its sales team.
Twitter stock has underperformed the broader markets since going public in 2013. It initially aimed to touch 400 million MAUs or monthly active users by the end of 2013 but missed the target by a huge margin. The company then replaced its MAU metric with monetizable daily active users to exclude inactive and spam accounts.
In 2021, Twitter’s mDAU’s rose 13% to 217 million. It expects mDAUs to touch 315 million by 2023 which is an annual growth rate of 20% in each of the next two years.
Analysts expect Twitter to increase sales by 18% to $5.87 billion in 2022 and by 22% to $7.32 billion in 2023. Comparatively, earnings are estimated to rise at an annual rate of 80% in the next five years.
The verdict
We can see that FB stock is valued at a forward price to 2022 sales multiple of 4.6x and a price to earnings ratio of 18x which is quite reasonable. Comparatively, Twitter is trading at 6.4x forward sales and a price-to-earnings multiple of 60x.
Further, FB stock is trading at a discount of almost 50% while Twitter is trading at a premium of 10% compared to consensus price target estimates. I believe its lower valuation and greater upside potential make FB stock a better buy today.
FB shares were trading at $223.14 per share on Friday morning, up $0.19 (+0.09%). Year-to-date, FB has declined -33.66%, versus a -5.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditya Raghunath
Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist.
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