Here's Why Tigress Financial's Feinseth Continues To Prefer Facebook Over Twitter

For some investors, there might be confusion over which social media stock to invest in – Facebook Inc FB or Twitter Inc TWTR.

Facebook reported strong fourth-quarter results that beat on the top and bottom line and surpassed even the most bullish estimates. The top line beat was driven by 57 percent growth in ad revenues, mainly on the mobile platform.

On the other hand, Twitter shares have come under pressure post-fourth-quarter earnings on the back of weaker than expected monthly active users (MAUs), which saw stagnant sequential growth for the first time in the company's history.

Tigress Likes Facebook Better

Facebook outperformed key user metrics MAUs, Mobile MAUs and DAUs, as it deftly maneuvered around changing consumer tastes within mobile, while driving increasing engagement in video and its Instagram platform.

"This confirms our thesis that Instagram and mobile are offsetting declines in the company's legacy platform. Many of FB's Performance metrics demonstrated robust Y/Y growth and it continues to generate substantial Economic Profit," Tigress Financial analyst Ivan Feinseth wrote in a note to clients.

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Global average revenue per user (ARPU) was up 77 cents from third quarter to $3.60. Notable strength was seen in Mobile, where mobile-only monthly active users was up 13.2 percent from 727 to 823 million users, and mobile ad impressions were up 29 percent year over year, the first growth since the third quarter of 2013.

"We believe this sets the stage for a continuation of advertising growth in 2016 driven by Instagram, video and mobile which are all benefiting from meaningful secular trends. FB expanded its Operating Margin over LTM to 73.54 percent, up from the five year average of 67.56 percent and we anticipate the company will maintain its strong margin profile over NTM," the analyst added.

Facebook would also be leveraging its 1 billion WhatsApp users, as well as its growing Messenger app, with its entrenched advertising platform to drive future monetization. Facebook confirmed that ads in the Messenger app will launch in the second quarter.

"FB appears to be immune from current macro weakness and we believe this strength will continue to drive shareholder value creation in NTM," said Feinseth who reiterated Buy rating on Facebook.

Twitter Tells A Different Tale

For Twitter, MAU growth is the key to future growth prospects and the analyst do not see any current drivers for MAU growth. In turn, this growth is the key driver of improved shareholder value creation for Twitter.

Current product changes, including Moments and the optional Algorithmic Timeline, have yet to resonate with Twitter consumers, as total MAUs of 320 million was sequentially flat with the third quarter.

"TWTR's product changes do not impact the MAUs ex-SMS Fast Followers at all; who receive tweets via SMS, that user base actually declined 2 million to 305 million in Q4. The algorithmic timeline is still in the early stages and we believe TWTR will continue to see negative to flat growth of the MAUS ex-SMS Fast Followers who see no improvement in the current value proposition and turn to competitors such as Facebook, limiting any upside in total user growth," Feinseth noted.

"TWTR's management is attempting to properly leverage current offerings, an area it has struggled with historically. We are pleased that management keyed in on Periscope integration as part of the company's mission surrounding 'live' content because video integration is what consumers expect video to be imbedded [sic] into social media, a feature Facebook is already benefiting from.

"We believe the return in January to Q3 user levels implies positive traction around the use of "live" content overall, however, positive user growth has yet to occur and we remain skeptical with regard to TWTR's ability to translate this traction into a long term user growth," the analyst added.

Feinseth, who has a Neutral rating on Twitter stock, said he prefers to remain on the sidelines until more tangible signs of traction are revealed.

In the last one year, Facebook shares have gained 31 percent while Twitter stock has plunged 62 percent. The broader S&P 500 index have fell 9 percent.