Despite growing diversity in the social media sphere, Facebook Inc (NASDAQ:FB) and Twitter Inc (NYSE:TWTR) unquestionably remain the big two players in this industry. Well, when we characterize Facebook and Twitter as being that to market leaders, we must also acknowledge that the former is much bigger than the latter in every conceivable measure at this point in time.
Nonetheless, Twitter remains the most feasible rival to the dominance of Facebook in social media, and thus the earnings figures of the two social platforms which have been released in recent days make for an interesting and informative comparison.
On first examination, Facebook’s figures for the fourth quarter of 2014 make encouraging reading for the already hugely successful social media site. Facebook reported Q4 profits of over $700 million, which represents a 34 percent increase on the same period from 2013. Additionally, advertising revenue achieved by the company grew by over 50 percent to $3.59 billion, and the company’s strong performance in mobile continued, with 70 percent of revenue being generated by mobile advertising sales.
Facebook can now boast around 1.4 billion active users every month, which represents a 13 percent increase from 12 months ago. It is also worth pointing out that this is 20 percent of the population of the entire planet! Furthermore, total profits had doubled over the 2013 figure, reaching nearly $3 billion.
These were excellent figures on the face of it, and Facebook has certainly done a great job of monetizing its contentand achieving profitability. There has been a particular emphasis is placed on mobile, and it is clear that the social media market leader is cashing in extremely efficiently in this department.
However, Facebook is in danger of reaching a glass ceiling. The amount of profit that the company made on each dollar of revenue decreased in these latest figures from 44 percent to 29 percent from a year earlier. This can to some extended be mitigated by the fact that Facebook invested heavily in marketing and research and development during the calendar year, with the figure related to the latter nearly tripling to $1.1 billion.
And Facebook has certainly diversified its interests in recent months and years, investing in acquisitions such as such as Instagram, WhatsApp and virtual reality headset maker Oculus Rift. This is not a company that is standing still, nor allowing its business model to grow stale.
Nonetheless, Facebook is clearly facing major growth issues in the near future. Ad revenue growth for the social media sites is beginning to decelerate, and although the number of monthly users increased for Facebook, delving more diligently into these figures indicates that engagement is perhaps not increasing as readily.
Daily active users are as important to Facebook as the number of users which log onto the site on a monthly basis, and according the company’s own metrics, engagement had flattened out during the last quarter of 2014. And with the best will in the world, once you’ve attracted 20 percent of the worlds population as users, there is obviously going to be difficulty in attracting new people to the platform.
This is why Facebook founder Mark Zuckerberg has been engaging in pilgrimages to developing economies, but China, for example, already has its own established social media sites, and breaking into the profoundly centrally managed Chinese marketplace, particularly for an Internet-driven company, is extremely challenging.
Considering that Twitter is desperately struggling to post any sort of profit whatsoever, there went exactly high expectations for the latest financial reports from the company. Twitter may attract a large amount of attention, and its revenue has been quite impressive at times, but the company has made one loss after another in its short life as a listed company.
Q4 of 2014 was no exception to this rule, as Twitter reported a net loss of $125m. However, it was not all bad news for the social media platform. Firstly, this $125 million figure was superior to analysts’ expectations, and the company was also able to report that its revenue had grown faster than expected in the fourth quarter of 2014, increasing by 95 percent to $479 million.
Twitter now boasts nearly 300 million active users, with the 288 million people that regularly log on to the site during the period from October to December representing an increase of 20 percent from 12 months earlier. However, Twitter is also seemingly experiencing the same issues as Facebook. The site was only able to attract 4 million new users over the last three months, which was a significant slowing in growth of usage from the previous year.
Realizing that this is a significant statistic for the social media site, the hierarchy of Twitter attempted to defend the slowing down in new users by stating that 4 million users were lost to the website as a result of integrating third-party applications. Twitter chief executive Dick Costolo stated that he believed that trends indicated that growth would remain solid throughout 2015, and at a similar rate to the first three quarters of 2014.
It is particularly notable that user growth in the United States for Twitter has almost reached a standstill, with the company indicating that it has around 63 million active users in the United States; exactly the same number it reported during Q3 of 2014. This is not good news for the company in the lucrative commercial marketplace of the world’s largest economy.
Aside from its economic problems, though, Twitter also has another major issue to address. Internal memorandums have indicated that the executive board of Twitter is aware that bullying and trolling on the site is dissuading people from using it, and negatively affecting the perception of Twitter in the media.
Ultimately, the results released by Facebook and Twitter indicate that both of the world’s two largest social media platforms are essentially experiencing the same problems. Both have growth issues to deal with, as there simply aren’t that many people left in the world who haven’t already heard of Facebook and Twitter, and thought at some point that they might wish to sign up for an account. And additionally, diversification in the social media marketplace, with many new site going online, will inevitably affect both platforms.
Quite simply, Facebook and Twitter have always benefited from a certain ‘flavour of the month’ quality, and now they are no longer the flavour of the month.