With shares of Facebook, Inc (FB) trading at new all-time highs and shares of Twitter, Inc (TWTR) struggling to find direction traders are beginning to speculate on what the New Year holds for the two most closely followed social media stocks in the market. While the two companies are constantly compared to one another their stories are really beginning to diverge. Shares of FB continue their climb higher while TWTR has come under pressure in recent weeks amidst a round of downgrades and price target cuts.
Facebook’s Outlook
Facebook came back in a big way in 2013. Shares traded to new all-time highs as FB managed to increase monetization of its mobile platform and continued to add subscribers. Concerns over user engagement and revenues attributed to their mobile platform abated some and investors piled in to the stock. Looking forward to the upcoming year many traders are asking themselves if FB can continue its climb higher or if the valuations are becoming stretched. Price action in the New Year would suggest that the traders expect for this trend to continue as FB has rallied over 6% in the 6 trading sessions of 2014. One of the most impressive statistics from FB in 2013 was the pace of their revenue growth. FB outpaced average revenue growth for the industry last year boosting their earnings. The year ahead will challenge FB to continue the pace of growth and stagnant user engagement. Reports show that teenage demographics are less engaged with the site and that users across the board are spending less time on Facebook. Despite these concerns FB has caught a round of recent upgrades and has made another new all-time high this week. While one can argue that the valuations are getting heavy we believe that the earnings growth over the past year and generally bullish price action will continue in 2014.
Trading Twitter in the New Year
The New Year has not been kind to shares of TWTR as the stock has already fallen over 9% in just 6 trading days. TWTR has also caught a round of analyst downgrades with analysts siting rich valuations as the main reason for lowering ratings. February of 2014 will be a big month for TWTR. The company is set to announce its first ever quarterly earnings results and investors will be able to comb through Twitter’s financials. We will be looking at key numbers such as user growth and revenue that can be attributed to the mobile platform. Traders are struggling to find a fair valuation for TWTR and these pieces of information should help the stock find some trend. The expiration of the first lockup is also on the horizon, which could put additional pressure on the stock as many holders could look to unload their stock. Until then it is likely that TWTR will stay in a flat to lower trading environment as stock continues to swing wildly in a wide trading range. We believe that TWTR will go through some growing pains and that 2014 generally will not be a strong year for the company.
Andrew Keene
http://keeneonthemarket.com/
