What Makes Meta Platforms Stock A Better Bet?

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We think that Meta Platforms (Facebook)’s stock (NASDAQ: FB) currently is a better pick compared to Twitter’s stock (NYSE: TWTR). Facebook’s stock trades at about 8.8x trailing revenues, compared to around 7.2x for Twitter. Does this gap in the companies’ valuations make sense? We believe so. Facebook has recorded higher revenue growth and a better growth in operating margin over the last three years. Facebook has also seen stronger revenue growth in the last twelve months. However, there is more to the comparison, which makes Facebook a better bet than Twitter at these valuations. Let’s step back to look at the fuller picture of the relative valuation of the two companies by looking at historical revenue growth as well as operating income and operating margin growth. Our dashboard Meta Platforms vs Twitter: Industry Peers; Which Stock Is A Better Bet? has more details on this. Parts of the analysis are summarized below.

1. Facebook Wins On Revenue Growth

As both companies’ fiscal year ends in December, its ongoing FY is 2021. If compared on the basis of the past three years, Facebook trumps Twitter in revenue growth. Facebook’s revenues have gained by a rate of 28.5% over the last three FY’s. On a comparable basis, Twitter‘s revenues rose by the rate of 15.2% over the last three FY’s. Further, for the most recent quarter (Q3 2021) both companies saw good revenue growth with Facebook’s revenues rising by 35.1% YoY, while Twitter’s rose by 37.1%.

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2. Facebook Clear Winner On Margins

Facebook’s Operating margins were 41.8% in the last twelve month period, a positive 2.9% change compared to the last three FY’s. In comparison, Twitter’s Operating margins were -8.5% in the last twelve month period, a negative 17.2% change compared to the last three FY’s. Facebook also has a better FCF margin at 47.7% compared to 31.1% for Twitter.

Risk

Facebook has a better debt position, with debt as % of equity of 0% vs 10.2% for Twitter. Twitter has more cash cushion, with cash as % of assets of 50.8% vs 34.2% for Facebook.

The Net of It All

While Facebook’s trailing revenue multiple stands higher than that of Twitter, it has seen stellar growth in revenues and operating margins compared to Twitter. A consistent rise in revenues and operating margin makes Facebook more attractive, despite a higher P/S ratio of 8.8x vs Twitter’s 7.2x. We believe Facebook has the potential to keep riding ahead, supported by strong financials, and the gap in valuation could further widen over time. As such, we believe that Facebook is currently a better buying opportunity compared to Twitter stock.

Also, Meta Platforms’ Peer Comparison summarizes how the company fares against peers on metrics that matter.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Dec 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
FB Return 7% 27% 201%
TWTR Return 1% -18% 172%
S&P 500 Return 5% 28% 114%
Trefis MS Portfolio Return 3% 48% 298%

[1] Month-to-date and year-to-date as of 12/30/2021
[2] Cumulative total returns since 2017

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