Twitter (Twitter Stock Quote, Chart, News NYSE:TWTR) may be ahead of the curve when it comes to political advertising but investors looking for a strong performer should be thinking about competitors like Facebook or Alphabet, says Rob Lauzon, chief investment officer at Middlefield Capital.
“Twitter, how they make money is advertising, generally, so I would stick with your Alphabets and Facebooks. What this business model is is social media and collecting advertising cheques. It has pulled back here and didn’t have a great quarter,” said Lauzon, speaking to BNN Bloomberg on Friday.
“We don’t own it currently. I know that Facebook and Google are in the news all the time with regulatory risk but I think that they’re doing a better job monetizing ad spend. I would buy other social media names,” he said.
The lead-up to next year’s US election is already cranking media into a fury with political advertising likely to play an oversized role in the discussion. And while both Facebook and Google have declined to make moves to ban political ads, Twitter CEO Jack Dorsey has said that his platform will no longer allow ads that promote political content, arguing that the reach of political messages “should be earned, not bought.”
“A political message earns reach when people decide to follow an account or retweet,” Dorsey wrote.
“Paying for reach removes that decision, forcing highly optimized and targeted political messages on people. We believe this decision should not be compromised by money.”
Facebook CEO Mark Zuckerberg has so far taken the opposing position, saying that allowing advertisers to address topics related to political parties and candidates is a matter of free speech.
Lauzon said that the US election could impact Twitter in a more fundamental way, as the social media site has seen usage grow in tandem with its plentiful use by current president Donald Trump.
“Your risk is if Donald Trump is not elected again — there’s a big following on Twitter every day because of [the political climate] and you don’t know how much the new President of the United States will use Twitter,” said Lauzon.
“I joined Twitter and enjoy the news stories there although I can get news stories from a lot of spots, I don’t have to use Twitter. But because the market reacts to Trump’s tweets, you almost have to be there to see it, as well,” he says.
Twitter’s handling of its advertising business has come under more scrutiny of late as the company works to fix a number of platform bugs that have been impacting revenue streams. Twitter’s share price dropped sharply after its latest earnings report in October as the company admitted product issues and advertising headwinds.
“In Q3 we discovered, and took steps to remediate bugs that primarily affected our legacy Mobile Application Promotion (MAP) product, impacting our ability to target ads and share data with measurement and ad partners,” Twitter management wrote in its third quarter shareholder letter. “We believe that, in aggregate, these issues reduced year-over-year revenue growth by three or more points in Q3.”
Twitter missed top and bottom lines estimates in its third quarter, coming in with revenue of $823.7 million versus the consensus expectation of $874.0 million and earnings of $0.17 per share compared to the expected $0.20 per share. (All figures in US dollars.)