Investors who think Facebook, Inc. (NASDAQ: FB) and its 1.49 billion daily users is the superior investment idea over the smaller Twitter Inc (NYSE: TWTR) may want to reconsider, at least according to Guggenheim.
Guggenheim's Michael Morris initiated coverage of Twitter with a Buy rating and a $39 price target. The analyst also initiated coverage of Facebook with a Neutral rating and $150 price target.
Twitter stands out against its social media peers by offering a communications platform with "snackability," Morris said in a note. Twitter's users appreciate the fact that their "less-personal nature" tweets and comments will be distributed beyond their friends and family list, which makes Twitter a provider of a global real-time discussion platform. Morris said this is mostly preferred by celebrities, politicians, journalists and the global public at large.
At the management level, Morris said Twitter is committed to offering a balanced user experience and environment through supporting free speech and expression to create a "healthy atmosphere" for its user base. This creates a more attractive platform for Twitter's advertising partners and continued improvements should help the company gain market share within the global ad spend market.
Twitter's platform holds an advantage over its peers as it strikes a superior balance between data usage and relevant ad targeting.
The research firms' $39 price target is based on a discounted cash flow valuation model through 2023 using a 10.6 percent weighted average cost of capital and a 3 percent long-term growth rate.
Twitter traded around $31.94 Thursday morning.
Facebook's daily users coupled with its status as a leader in mobile engagement across multiple apps makes it uniquely positioned to offer advertisers superior exposure to key demographic groups that are migrating away from traditional TV, Morris said. The company's advantages, however, are overshadowed by multiple challenges impacting the health and security of its core products.
Among the biggest problems Facebook faces is declining domestic metrics on its core Facebook platform, especially among younger users. While the company's Instagram platform is offsetting some of the headwinds in the core platform, Morris said the declines are still concerning as it impacts monetization initiatives over the long term.
Facebook faces other challenges in terms of how it uses its consumer data, the analyst wrote. The company is still in the early stages of addressing this problem but the concentrated ownership structure (CEO Mark Zuckerberg controls 51.6 percent of the common stock voting rights) adds another layer of risk as it calls into question management's ability to address its risks.
Guggenheim's $150 price target is based on a discounted cash flow valuation through 2023 using a 10.7 percent weighted average cost of capital and a 2 percent long-term growth rate.
Facebook traded around $136.22 per share Thursday morning.
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