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Market Outlook

Why Facebook, Snapchat and Twitter’s share prices are diverging

Facebook, Snapchat and Twitter have seen their share price performances take different paths as they clash on whether to police content.

Since the start of the month, Snapchat [SNAP] and Twitter’s [TWTR] share prices have climbed 11.8% and 22.3%, respectively, as of 18 June. Facebook’s [FB] share price, meanwhile, climbed just 1% in the same period of time.

Freedom of speech on social media has always been a hotly debated topic, frequently affecting the shares prices of Facebook, Twitter and Snapchat. Recent headlines are no different, causing flutters in these companies’ share prices.

22.3%

Twitter's share price rise since start of June - compared with Facebook rising only 1%

 

The topic has become a flashpoint once again as each company was forced to consider the impact of leaving certain content unchecked on their platforms, especially in regards to messages posted by US President Donald Trump. Following a recent message from the president, Twitter and Snapchat decided to take a more active role in monitoring content, while Facebook chose to become less involved.

The divergence in each company’s share price reflects the splintering of opinions that could very well become driving factors in the long-term.

 

Arbiters of truth

The death of George Floyd on 25 May, who was killed while in police custody, sparked protests over racism and police brutality across the US and the globe. During this time, a message posted by Trump was flagged by Twitter, which added a warning label that the tweet was “glorifying violence”. The company had previously decided to fact-check two of Trump's recent posts.

On 29 May, Twitter’s share price dropped 1.9%. While Twitter’s decision to take a more involved position in its content led many to praise CEO Jack Dorsey, Facebook’s CEO Mark Zuckerberg had taken to criticising the firm’s decisions.

“I just believe strongly that Facebook shouldn't be the arbiter of truth of everything that people say online,” he told Fox News on 27 May. Facebook’s share price dropped by 1.3% at close later that day.

“I just believe strongly that Facebook shouldn't be the arbiter of truth of everything that people say online” - Facebook’s CEO Mark Zuckerberg

 

Zuckerberg’s decision created a ripple of unrest within the company. Many defended his actions, but other employees threatened to resign and staged walkouts.

Facebook has been historically wary of wading into the political fray. In October 2019, Zuckerberg publicly said that the platform wouldn’t fact-check political advertisements, Business Insider noted.

Snapchat’s CEO Evan Spiegel, meanwhile, sided with Twitter. On 3 June, the company said it would stop promoting Trump’s account, saying that he had incited “racial violence and injustice”.

Following the announcement, Snapchat’s share price dropped 2.3%. However, the share price quickly recovered, climbing 10% to $19.71 on 11 June.

Snapchat has gained prominence in the US as a political campaign tool, counting hordes of younger voters as part of its loyal user base. While it may be the smaller than Facebook or Twitter, its revenue was up by 44% year-over-year to $462m in the first quarter, trouncing analyst estimates it would hit $428m.

Snapchat also lost far less than analysts had thought it would, banking an adjusted loss of $0.08 per share rather than the $0.20 cent loss that was on the cards, according to FactSet.

44%

Snapchat's YoY revenue increase

 

Market dominance tints outlook

Despite the strong performance, analysts at Hargreaves Lansdown are still concerned about the future of the Snapchat.

“We still have underlying gripes. Free cash flow is improved but still negative, and that's before you take account of the huge stock-based compensation costs which hit $686m last year,” they said. “Issuing shares to employees may not be a drain on cash, but it's still a cost to investors and as a result net income is substantially negative.”

The crux is that Facebook and Twitter have more resources to pour into product development, which could threaten Snapchat’s competitive edge. As a result, many remain cautious. 

Analysts polled by MarketBeat gave Twitter a small vote of confidence, with the majority rating the stock a hold. The share price target for Twitter has remained fairly steady over the past six months at $32, despite political and socio-economic turbulence that have caused stock markets to convulse. 

“Free cash flow is improved but still negative, and that's before you take account of the huge stock-based compensation costs which hit $686m last year. Issuing shares to employees may not be a drain on cash, but it's still a cost to investors and as a result net income is substantially negative” - analysts at Hargreaves Lansdown

 

Investors can be fairly confident in Facebook’s outlook for the near future, as, among the 45 analysts polled by the publication, 40 rated it a buy. With the share price hitting an all-time high of $238.67 on 9 June, this signals confidence it is showing no signs of suddenly tanking.

Facebook had also decided to diversify beyond its advertising revenue stream, with the launch of Facebook Shops. This means it is hedged against advertising revenues that have made the future of other platforms more uncertain. 

Despite the three companies taking different stances on censorship, each has performed relatively consistently. Facebook’s market cap has given it staying power that analysts trust and so comes out as a steadfast favourite. All three are being buoyed by factors that have sent other companies into tailspins.

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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