When you put Twitter Inc. and Baidu Inc. together, investors could easily see which stock could still hold better.
Twitter, an online news and social network firm, is already considered as a ruined IPO by many analysts. Its stock currently trades well below its 2013 price of $26 per share, specifically down 1.81% to $15.77.
Chinese-American web services company Baidu has been one of the best investments globally when it comes to internet stocks. It went public 12 years ago at a split-adjusted price of $2.70, which is a remarkable 64-bagger over the past years since its Wall Street debut. Baidu shares are trading at $174.01 in the last session, up 0.67%.
Baidu, Twitter shares
Both online companies are going through some difficulties at the moment as they find themselves posting their weakest growth as public companies.
Twitter’s growth has slumped to single digits, and even ad revenue is failing to keep up with the platform’s usage. Additionally, after a huge nosedive in October 2016 from $24.22 to $19.99 and ultimately to $17.39, Twitter shares have failed to recover and rise above $19.
A sharp surge occurred on September 22, 2016, which sent Twitter from $18.62 to $21.32 on news that that the company was moving closer to being bought out by the likes of Google or Salesforce.com. It eventually hit a multi-month high of $25.27. However, in less than a month, the stock dropped to all-time lows after reports that potential bidders namely Salesforce.com, Disney, Google and Apple had lost interest in Twitter.
Only recently, on February 10, Twitter hit another record low after delivering worse-than-expected fourth-quarter financial results.
Meanwhile, Baidu's financial performance has traversed towards a worse path. The death of a student who underwent an experimental cancer treatment he found on Baidu’s search engine last year has convinced regulators to scale back the way the company and its smaller peers can present health-related paid listings. Baidu has been forced to cut healthcare ads under a new government compliance code.
The stock had a rocky trend since the last week of September until the final days of December 2016. Among the catalysts that dragged the stock was a weak third-quarter earnings report which showed a drop in revenue. The stock recovered in the first two months of 2017 until its notable decline on February 24, in which the internet company reported a second straight bleak quarterly report.
For investors, Twitter has been a notable painful stock, but the social media platform is as popular as ever. In its latest quarter, there was a reported average of 319 million monthly active users; slightly higher from the 317 million during both the fourth-quarter of 2015 and the third quarter of 2016.
Ad revenue unexpectedly fell, but this is unlikely to last. Advertisers are spending more to reach users online, and Twitter's hiccups as it experiments new offerings will eventually morph into monetization-enhancing opportunities.
Twitter would be in trouble if engagement was either stagnant or waning, but average daily active usage has grown 11% over the past year instead. This is a trend that has been accelerating as 2016 played out. While user growth has slowed, those on Twitter are checking their feeds more often nonetheless.
Similarly, Baidu has troubles with fall ad revenue; its Rolodex is a lot thinner these days. Baidu closed out 2016 with 452,000 online marketing customers, 19% fewer than it was serving a year previously. Most of that decline is Baidu turning advertisers away as it enhances the quality of its marketing customers, particularly healthcare-related sponsors. The good news there is that ad revenue only dropped 8%.
Baidu will be seeing better scenarios in the future, one of which is its budding video content strategy that would yield more high-paying ads.
Neither stock is cheap by standard measuring sticks, as Twitter and Baidu trade at profit multiples of 38 and 23 respectively. Both have the ability to justify solid market premiums if things go right, though for Twitter the easiest way to pop could be someone willing to pay a premium to obtain the wide-reaching social platform. Baidu can cash in if some of its non-search businesses—operations that have dragged the firm's margins over recent years— until they can trade on their own.
While Baidu is easily the better pick with its attractive valuation and clearer paths to operating progress, the untapped potential at Twitter is something that makes it risky to short and potentially game-changing to own.
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