Social media companies Twitter Inc. (TWTR) and Snap Inc. (SNAP) both posted their most recent quarterly earnings results this week, sending shares of the former skyrocketing and that of the latter down to new lows. Despite lower user numbers for the California-based tech firms, both managed to squeeze more revenue per user. Investors, however, remain concerned regarding Snap's ability to ward off competition from Facebook Inc.'s (FB) Instagram platform, and its lack of importance among digital advertisers. Meanwhile, Twitter, which has been struggling with heightened regulatory pressure and criticism about fake and offensive accounts, got a breath of fresh air as the Street applauded better than expected top and bottom line numbers.
Snap Can't Shake Instagram Fears
Snap's earnings after market close on Thursday showed a bigger drop in daily users than expected, while the company posted a smaller than expected loss and revenues above the consensus.
Ahead of earnings, bears on the Street noted that the Q3 report would be crucial for beaten down Snap as it struggles to make itself a must buy for advertisers. The photo and video sharing platform has failed to move from the experimental or proof of concept stage among advertisers, making it harder for Snap to generate revenues from its Millennial-heavy user base, many of which are deleting the mobile application and spending more time on Instagram, which has copied many of Snap's initial features such as a 24-hour "story."
Analysts such as BTIG's Rich Greenfield note that CEO Spiegel "needs to explain his perspective on the Facebook threat," given Instagram Stories daily active users are now "dramatically larger than Snapchat and time spent among your core teen/young-adult demo now far more evenly split than a year ago between Instagram and Snapchat," as reported by Bloomberg.
Santa Monica, California-based Snap is facing a handful of other challenges, threatening employee and executive retention. On Wednesday, Cheddar reported that according to an internal company survey, 40% of Snap employees are planning to leave the firm, compared to just 11% earlier in 2018.
Down 11.2% on Friday at $6.21, Snap stock has sharply underperformed the broader market, down 57.5% YTD compared to the S&P 500's nearly flat run in 2018 and reflecting a more than 63% decline from its IPO price of $17 in March 2017.
Twitter Monetization Trends to 'More Than Offset' MAU Decline
Twitter shares, on the other hand, surged the most in eight months after Q3 results. Trading up 1.6% on Friday afternoon at $32.31, Twitter stock reflects a 34.6% increase YTD.
The San Francisco-based company posted a near 30% gain in ad revenue in Q3, its third consecutive quarter of double-digit growth.
Moving ahead, investors are optimistic regarding a strategic shift to add more live video and personalized content. Twitter plans to continue purging fake accounts on its platform, posing a threat to user metrics, already expected to fall again in Q4, yet helping ease criticism ahead of mid-term elections in Nov. Baird analyst Colin Sebastian wrote a note following the report suggesting that Twitter's monetization trends are enough to "more than offset" a dip in monthly active users, as reported by Bloomberg.
Overall, bad news seems fully priced into Twitter stock, with the Street now less concerned with user numbers and more upbeat regarding financial metrics, user engagement and better ROI for advertisers as the company doubles down in investments in AI and machine learning.