According to eMarketer, the digital advertising market will grow by 11.6% annually between 2019 and 2023. Both social media companies Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR) are poised to profit from this secular trend. Over the last several years, Facebook outpaced Twitter in terms of revenue growth and profits, which translated into Facebook’s superior stock price performance. But since both companies now face different challenges, let’s see whether Facebook remains a better buy for long-term investors.
Facebook’s stellar performance
After some uncertainties around the monetization of its mobile audience at the time of its IPO in 2012, Facebook has rewarded early investors with a stellar performance so far. The company estimates that 2.2 billion people use one of its core platforms (Facebook, Instagram, WhatsApp, or Messenger) every day on average. And despite its huge scale, revenue — mostly from advertising — still increased by 29% year over year during the last quarter, reaching $17.65 billion.
However, the social media giant neglected its users’ data privacy along the way — the Cambridge Analytica scandal comes to mind — and the Federal Trade Commission (FTC) charged the company with a penalty of $5 billion.
The FTC decision comes with extra scrutiny, and management forecasted an increase in total expenses to the range of $54 billion to $59 billion in 2020 to address security and privacy issues along with supporting growth. Yet even with this headwind, the midpoint of management’s guidance represents an impressive operating margin of 34.1%, based on analysts’ revenue estimates.
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