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Since appearing on FOX Business last week to talk about three major tech companies – Facebook Inc. (Nasdaq: FB), Twitter Inc. (NYSE: TWTR), and Amazon.com Inc. (Nasdaq: AMZN) – I've been getting a ton of questions about what the future really holds for these companies.
Especially Facebook and Twitter.
Those are probably the two best-known players in the social media sector right now.
After releasing their third-quarter earnings reports just days from each other last week, it's evident that their fortunes are starting to diverge.
While Facebook's fortunes are on the rise, Twitter is choking.
Today, I'll tell you why…
It's All About Who Has the "Bigger" Ads
The tale of these two companies boils down to one key factor – user growth.
In social media, user growth is the be-all and end-all.
Both Facebook and Twitter pour millions of dollars into growing their user bases.
But while Facebook just announced its ninth consecutive quarter ahead of market expectations, Twitter is struggling.
Despite beating or matching most analysts' expectations in its Oct. 27 quarterly report, Twitter reduced its fourth-quarter guidance – and got slammed. In after-hours trading that night, Twitter stock began plummeting, and has fallen some 17% since then.
The micro-blogging site is losing some of its steam as the year closes out.
And it's all happening because of one thing – ads.
The San Francisco-based company isn't fully exploiting its Twitter Ads space. And because of that, Twitter doesn't have the same monetization opportunities that Facebook is capitalizing on.
In fact, out of Twitter's estimated 4.5 million small-business accounts, only several thousand have used Twitter Ads.
Compare that to Facebook. Of the Menlo Park, California-based company's estimated 30 million small-business accounts, nearly 2 million are advertisers.
Twitter Chief Executive Officer Dick Costolo is still shoring up the company's operations in order to sell ads and grow the user base. In other words, this is a company still finding its sea legs.
That's why I'm so bullish about Facebook.
I first recommended Facebook stock to you back in March, and my opinion of the company hasn't changed. Facebook is a mobile advertising juggernaut.
In fact, Facebook announced in its third-quarter report on Oct. 28 that advertising revenue was up 64% from the same quarter one year ago to $2.69 billion.
The real strength to this social media tycoon is its powerful earnings – up 72% year over year – on top of increasing numbers of user. Facebook reported 40 million new subscribers last quarter alone and nearly one-fifth of the world's population signing in at least once a month.
These factors indicate that Facebook is a company that has the steam to keep moving and the foundation to come out of any market dips.
That's just the sort of heft that Twitter isn't capable of right now, but its making an effort to climb back into the ring…
Twitter's IBM Deal Is Critical
About the Author
Michael A. Robinson is a 35-year Silicon Valley veteran and one of the top technology financial analysts working today. He regularly delivers winning trade recommendations to the Members of his monthly tech investing newsletter, Nova-X Report, and small-cap tech service, Radical Technology Profits. In the past two years alone, his subscribers have seen over 100 double- and triple-digit gains from his recommendations.
As a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs and high-profile industry insiders. In fact, he was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon. And he was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
In addition to being a regular guest and panelist on CNBC and Fox Business Network, Michael is also a Pulitzer Prize-nominated writer and reporter. His first book, "Overdrawn: The Bailout of American Savings" warned people about the coming financial collapse - years before "bailout" became a household word.
You can follow Michael's tech insight and product updates for free with his Strategic Tech Investor newsletter.