Facebook, Twitter, and the User Narrative

We are the same company now as we were before, and we have the same opportunity in front of us to build something important and valuable.”

So said Facebook chief financial officer (CFO) David Ebersman during Facebook’s first investors’ call in the summer of 2012. However, you could just as easily attribute it to the principals at Twitter during its first earnings call 18 months later. And you could just as easily replace the market response to those first Facebook results with the one that met Twitter earlier this month. In the hours after announcing earnings, Twitter dropped from $66 a share to $52, erasing billions of value from the company. By comparison, Facebook would bottom out at $18 per share before beginning a steady climb to a price of nearly $64 today.

The Facebook turnaround is largely tied to its ability to become a truly mobile company. Now, more than half of all revenues are coming from mobile advertising. This is a massive increase from the early public days, when less than a quarter of all Facebook revenues were mobile. Twitter is now at 75 percent of all revenues coming from mobile.

Yet, Facebook is under attack from some circles because it apparently has a youth problem. Various studies have cited the emergence of alternative social networks as a drain on future growth. And while there is truth in the statement that the next generation of would-be Facebook users are opting in to Snapchat and Instagram (a Facebook company), it’s often an overblown, anecdotal position people take. If Facebook continues to grow its mobile position and evolves its feature set for its 1.2 billion user base, this will likely prove to be a red herring of a trend for the social giant.

And that brings us back to Twitter and its current “challenge” as presented to investors, which is a slowing growth of its monthly user base. For Q4 of 2013, Twitter reported growth of only 9 million average monthly users. Year-over-year the company has shown 30 percent user growth, with stronger growth outside the U.S. – an area that is still very ripe for future growth and revenues.

During the company’s earnings call, chief executive (CEO) Dick Costolo simplified its future objective by saying, “We simply need to make Twitter a better Twitter.” That likely means a more accessible Twitter. Whereas Facebook’s user base may be slightly contracting, Twitter is searching for the mainstream tie-in. Right now its most loyal users cannot live without it and Twitter has done a better than forecasted job of monetizing that behavior. But for most would-be users of the service, the value proposition does not resonate. Yet. 

And that’s the key when exploring where Facebook and Twitter go from here. While the narrative of death by generational irrelevancy plays well, there’s not enough core user data to suggest it will not be rectified through acquisition or evolution. Likewise, with increasingly synchronized viewing experiences, the growing war chest of cash reserves and brand advertiser enthusiasm, it’s hard to say Twitter is doomed to simply be a niche platform. Neither company feels misguided in their efforts of who they want to be in the quest, as Ebersman described it, “to build something important and valuable.”

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