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
None of this is a death sentence for Twitter. The company is still the most heavily trafficked social media site out there in the marketplace.
On average, Twitter users send out 500 million "tweets" per day - that's nearly 6,000 tweets per second.
It just doesn't have the momentum to pack a punch when it comes to revenue and user growth.
That's why Twitter investors are hoping its recent partnership with IBM Corp. (NYSE: IBM) will be the jump start TWTR stock needs to gain back some of those losses.
Twitter and IBM announced that they have joined forces in the software analytics market. Twitter plans to integrate its data into Watson, IBM's "cognitive" Big Data technology.
The verdict is still out whether this partnership will help boost Twitter stock high enough to stand up next to Facebook stock, but I'm certain of one thing - Twitter is heading for a rocky short-term future.
It's going to take three or four more quarters to see how all this is going to shake out, but we'll be checking in on this regularly.
About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top tech and biotech financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- 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.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he 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 the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
And even with decades of experience, Michael believes there has never been a moment in time quite like this.
Right now, medical breakthroughs that once took years to develop are moving at a record speed. And that means we are going to see highly lucrative biotech investment opportunities come in fast and furious.
To help you navigate the historic opportunity in biotech, Michael launched the Bio-Tech Profit Alliance.
His other publications include: Strategic Tech Investor, The Nova-X Report, Bio-Technology Profit Alliance and Nexus-9 Network.