Social media giants like Meta Platforms and Twitter have been dominating the headlines recently for several reasons, from company name changes, to whistleblower complaints, to management changes.
An eMarketer report from earlier this year estimates that adults are expected to spend 1 hour and 35 minutes each day on social media. Despite that, this report expects that Twitter will grow its users by only 0.2% this year, while Facebook is projected to experience its slowest growth this year, at 0.8%.
Considering the recent winds of change for these companies, let us compare these two social media companies, Meta Platforms, and Twitter, using the TipRanks Stock Comparison tool, and see how Wall Street analysts feel about these stocks.
Meta Platforms (FB)
Facebook, now rebranded as Meta Platforms, continues to face the heat after whistleblower Frances Haugen’s claims in October. She reported that the company was aware that its social media platform spread misinformation, violence, and hate, but the company had chosen to prioritize profits over users’ mental health.
Last month, Haugen testified before the European Parliament against the growing power of the Big Tech companies, especially Meta Platforms.
Monness Crespi Hardt analyst Brian White noted that the whistle blower’s hearing at the European Parliament was “constructive” and believes that Haugen “recognizes the potential for Europe to pave the path for the U.S. to regulate Big Tech.”
Here, White was referring to the proposed Digital Services Act (DSA).
The European Parliament has proposed to bring in the Digital Services Act (DSA) and the Digital Markets Act (DMA) that aims “to create a safer digital space” and “to establish a level playing field to foster innovation, growth, and competitiveness, both in the European Single Market and globally.”
According to analyst White, Haugen thinks that the DSA can be a “global gold standard” when it comes to digital regulations. (See Top Smart Score Stocks on TipRanks)
The analyst cited Haugen’s testimony that said that FB was relatively less transparent versus its competitors, including Alphabet (GOOGL) and Twitter (TWTR). Haugen also believes “greater accountability and transparency are key requirements in cleaning up the platform.”
Analyst White seems to agree with her. The analyst commented, “In our view, the concept of a metaverse is intriguing; however, we believe only those companies that have earned society’s trust will prove successful in this new virtual world.”
While the analyst remains bullish, with a Buy rating and a price target of $460 (41.7% upside) on the stock, he perceives certain risks in achieving this price target. One of these risks is the “financial, regulatory and reputational impact from data privacy issues and other potential data breaches.”
Indeed, according to the TipRanks Risk Factors tool, the company is at a higher legal and regulatory risk, of 23%, compared to the sector average of 16.6%.
Other analysts on Wall Street echo White and are upbeat about Meta Platforms, with a Strong Buy consensus rating based on 29 Buys, 5 Holds, and 1 Sell. The average Meta Platforms price target of $406.31 implies 25.2% upside potential to current levels.
Shares of Twitter fell 4% yesterday and have plunged 6.8% in the past five days. The social media giant is going through a churn as Co-Founder and former CEO Jack Dorsey resigned from Twitter to make way for his long-time friend and Chief Technology Officer of Twitter, Parag Agrawal, who will be the new CEO.
Dorsey, however, will remain on the board of directors until his term ends in May 2022. The company also named Bret Taylor as the new Chairman of the Board.
Mizuho Securities analyst James Lee viewed Dorsey’s exit from Twitter as “positive” and believes that the company needs a CEO that is more focused on its advertising business.
The analyst pegged Mr. Agrawal’s credentials as “impressive” and commented that the company’s management should also look at “hiring seasoned advertising executives from either Google or FB (Facebook) to accelerate its DR product improvements.”
The analyst is of the view that this change could result in Twitter being “more technically-focused” on its product improvements, as he believes that it is lagging its peers when it comes to user growth and performance advertising. (See Analysts’ Top Stocks on TipRanks)
In the third quarter, Twitter’s Monetizable Daily Active Usage (mDAU) grew 13% year-over-year to 211 million and its direct response (DR) offerings currently comprise around 15% of its total revenues.
Analyst Lee believes that these statistics are still behind schedule when it comes to Twitter’s targets. The company had announced on its Analyst Day that it intends to grow its mDAU at a Compounded Annual Growth Rate (CAGR) of 20%, and is targeting having DR comprise 50% of its revenues.
Lee remained sidelined on the stock with a Hold rating, even as he felt that TWTR was at a “compelling ” valuation with the “recent pullbacks.” The analyst had a price target of $70 (59.3% upside) on the stock.
The rest of the analysts on the Street echo Lee and are sidelined about Twitter with a Hold consensus rating, based on 4 Buys, 15 Holds, and 2 Sells. The average Twitter price target of $68.68 implies 56.3% upside potential to current levels.
It is interesting here to note that while Twitter lags FB when it comes to advertising revenues, Twitter is perceived as a more “transparent” company compared to FB.
While analysts are bullish about FB as they are upbeat about its profitability, it remains to be seen whether legal and regulatory issues hamper this profitable outlook.
In contrast, analysts seem to be in a wait-and-watch mode with TWTR with a Hold consensus rating, and it remains to be seen how the recent management changes will impact the company.
Disclosure: At the time of publication, Shrilekha Pethe did not have a position in any of the securities mentioned in this article.
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