LinkedIn just notched a disappointing quarter, raising concerns that its growth, once robust, is winding down. Twitter has been unable to determine how to increase advertising revenue. That led to the departure of former CEO Richard Costello. Current CEO Jack Dorsey is also heading the payment services provider Square. Critics have questioned whether one person can simultaneously manage two major enterprises that both face challenges.
Which one could mount a recovery? Will it be the LinkedIn with its huge stores of information about users, or Twitter which is trying innovations to enliven its lackluster state? LinkedIn is the better play, but here are the pros and cons of each.
People like tweeting but in the world of hyper-connected, dynamic social media, Twitter activity appears to be slowing. Fourth-quarter, monthly active users were flat quarter to quarter. Concurrently, revenue growth has slowed (from more than 100% year-over-year levels to below 50% in Q4 2015). Facebook head Mark Zuckerberg suggested that Twitter attend more live events.
Twitter is considering an increase from the 140-character limit for Tweets. But the bigger problem is that its one-dimensional format leaves the field open for Facebook, Instagram (owned by Facebook) and Whatsapp (owned by Facebook) to cash in. Strategically Twitter's advantages have vanished in the new reality of instantaneous Facebook posts, Instagram photo uploads and Whatsapp messages.
When looking for a growth tech stock, pinpoint those with unique selling propositions. Twitter has lost some of its unique selling proposition.
Twitter relies heavily on ads to survive, but that has been a sore spot with analysts. Alphabet remains the undisputed king of the online ad business.
Twitter could find solace in picking up a few pieces, but then why would you pay lofty valuations for it?
Meanwhile, Twitter is bleeding money. Twitter has lost over $2 billion since its launch (partly due to heavy stock based compensation). Even as it trades at about 21 times forward earnings, it's difficult to see Twitter growing its user base and delivering those users more ads to increase revenue. Analysts project a 47.80% earnings per share (EPS) growth for the next five years, but this could be scaled down soon, making the stock unappealing.
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The professional networking site LinkedIn is in a technology sweet spot. It is the leader in the professional networking and online job-hunting space.
LinkedIn has little in common with Twitter, aside from the fact that both companies are technology companies and the CEOs have tried to boost employee morale by giving away stock options. The company offered weak first-quarter, 2016 guidance.
Right after fourth quarter earnings were out, LinkedIn saw its stock drop to levels last seen in 2012. Analysts were disappointed with the revenue growth deceleration.
But unlike Twitter, LinkedIn's registered users are growing both year-over-year and quarter-over-quarter. It doesn't depend as hugely as others on online advertising (21% of total revenue).
LinkedIn's biggest business segment is talent solutions for corporations, which is a strong growth area. Hiring is data dependent, and LinkedIn is a repository of data, which is alone worth billions, and makes it an attractive acquisition opportunity.
LinkedIn crunches 120 billion relationships every single day. Furthermore, a plethora of new initiatives by the company will make it a stronger professional brand. For instance, new engagement tools are positively impacting increased content, page views and sharing.
When LinkedIn users use the platform more regularly, the site becomes more attractive for advertisers and increases the potential for raising advertising dollars. At 28 times forward earnings, LinkedIn isn't perfect, but it still represents a better investment opportunity than Twitter.
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