Think Before You Tweet

Even after a recent rebound, shares of Facebook and Instagram parent Meta Platforms are down about a third since the company's fourth-quarter earnings report and ominous guidance early last month. The social media giant warned of increasing competition from the likes of TikTok and of a $10 billion hit to 2022 revenue from Apple’s new privacy policies, which restrict app tracking on iPhones and iPads.

Barron's Connor Smith writes in this week's Tech Trader column that investors are better off looking to Twitter stock for social media growth, rather than betting on a rebound in Meta shares.

For all of the cultural influence and informational utility that Twitter provides, its business just can't match up. The service generates barely half the average revenue per user that Meta does. The opportunity lies in Twitter's efforts to narrow that gap.

There's a lot to like these days, writes Connor:

Twitter is showing new progress toward its revenue and user goals, prodded by CEO Parag Agrawal, who took over from co-founder Jack Dorsey late last year.

Twitter has recently rolled out a spate of new features and monetization efforts. The app’s Communities offering lets users create smaller silos to chat about specific topics, like gaming or finance, with like-minded individuals. That could be appealing to advertisers looking to reach specific audiences. The company is seeing success with Spaces, which rolled out officially last year and allows users to host audio conversations akin to the venture-capital-backed Clubhouse app.

[Chief investment officer of RGA Investment Advisors and longtime Twitter investor Elliot] Turner notes that Clubhouse’s breakout success was driven, in part, by chatter on Twitter itself. Clubhouse seems to have lost momentum, based on Google search data, while Spaces is still gaining traction. According to Turner, Spaces’ success proves that Twitter can be a potent funnel. “When they build the right tools to leverage their position, good things do happen,” he says.

The market appears skeptical that good things will in fact happen, however. Twitter stock trades for about four times estimated 2023 sales according to FactSet. That's certainly not cheap, but it's well below Twitter's historic multiples, and the 7.3 times 2023 sales that rival Snap trades for.

After numerous false starts over the company's history, investors will want to see proof in the quarterly numbers before they give Twitter stock credit again.

You can read the rest of Connor's column on Twitter here.