16:41 July 6, 2023
Just a week ago, the world watched in awe as two business heavyweights — Elon Musk and Mark Zuckerberg — traded hits online and vowed to actually have an MMA fight. The case remains open and it could be that one day two billionaires will face off in a ring. Still, another fight between the two is already underway. However, this isn’t a martial arts match, it’s a business match — an area in which both Musk and Zuckerberg have vast experience.
A major potential disruption is on the horizon in the social media industry. Meta Platforms launched Threads, a new text-based communication app, to compete with Twitter. The app is available for download in app stores today (Thursday 6 July) and the release couldn’t come at a better time given the recent troubles of its main competitor, Twitter.
First round: Meta Platforms challenges Twitter
Today (Thursday, July 6th) Meta Platforms introduces its new app – Threads. Threads will be a text-based communication app and will be linked to Instagram, a social media platform owned by Meta. Threads can be seen as a direct threat to Twitter – the app focuses on text-based conversations that can be shared and commented on with a group of followers. The public was teased when Threads offered to impose no restrictions on the viewing of content and promised to continue offering the services for free. Highlighting these facts is a clear response to recent changes at Twitter, which are limiting the amount of content users can see and suggesting that more and more Twitter features could be locked behind a paywall in the future.
One of the greatest features of Threads is that, as mentioned, it links to Instagram. This means that it will be easier, or most likely automatically, for current Instagram users to transfer the list of people they follow on Instagram to threads. Given that Instagram has over 2 billion monthly active users, this has the potential to give Threads a huge head start and allow it to quickly challenge Twitter’s dominance. To put that number in perspective, consider that Twitter “only” has around 240 million monthly active users! Additionally, Instagram and Twitter’s user bases appear to share demographics, which should make it easier for threads to attract disgruntled Twitter users.
Round two: Twitter is struggling with recent changes
Meta Platforms’ launch of a new product couldn’t come at a better time. Main competitor app Twitter has opted for a series of changes to its platform since it was acquired by billionaire Elon Musk in late 2022 in a high-profile takeover, and those changes have received mixed reviews, to say the least.
Twitter has seen many changes since Musk acquired it, such as changing verification rules or relaxing content moderation rules. However, the most recent change – limiting the number of tweets that can be viewed per day – was felt by almost all users and was widely criticized. Plans to put TweetDeck, a popular Twitter browsing software, behind a paywall have also drawn criticism.
Third round: Can Twitter resist threads?
Meta Platforms isn’t the first company to develop a competitor app to Twitter. However, while many who have attempted to launch a successful alternative to Twitter have failed, Meta’s product could be a different story altogether. First, the company is huge and has the resources to thrive. His experience in this field is certainly helpful, while his extensive social media portfolio will help attract users through cross-platform integration. Meta is a huge company and was valued at over $350 billion in October 2022 when Musk acquired Twitter for $44 billion. Twitter and Meta went public at more or less the same time, but Meta has posted slightly higher compound annual revenue growth (56%) than Twitter (54%) since its debut.
Second, Twitter is struggling with the new changes. Limiting how many tweets can be viewed threatens to become a massive own goal for the company. While measures aimed at restricting free use of Twitter for business purposes are understandable to a certain extent, measures aimed at restricting access to social media content for non-commercial users, who make up a majority of the website’s traffic, are understandable and, in turn, increase ad revenue, not necessarily an understandable approach for companies to pursue.
Another important factor to consider here is that it wouldn’t be the first time Meta has launched an app based on the success of another company’s product. This was the case with Meta’s Stories, considered to be Snapchat’s rivals, or Reels, considered to be TikTok’s rivals. Although neither managed to dethrone their main rivals, both proved successful projects for Meta. Meanwhile, Snapchat had a market cap of $32 billion when it debuted and has since fallen to around $20 billion.
In summary, there is a good chance that Meta threads can pose a major threat to Twitter. Meta has the resources and expertise to make the app a success and has proven the company’s ability to transform others’ ideas into reality. The fact that Threads is started at a time when Twitter is struggling only increases the chances of success.
Fourth round: Threads is not without weaknesses
However, it looks like not everyone will be able to take advantage of Meta’s new app immediately upon launch. While the company said it is preparing to launch products in over 100 countries, there are signs that it will not be available in the European Union, at least not initially. The Independent reported that Meta is not currently preparing to launch a new service in the European Union and that the Irish Data Protection Authority has stated that Threads will not be launched in the EU for the time being. With Threads available for pre-order in UK app stores, the lack of adoption in the Euroblock appears to be an issue with EU laws. However, it is very likely that a way will be found and Threads will eventually premiere in the EU as well, especially if launches in other countries prove successful. Still, the lack of launch in the second most important market in the world can be seen as an own goal.
Fifth Round: Not every project by Meta was a success
Reels and Stories are Meta Platforms success stories, but it has to be said that things aren’t always so rosy. For example, Meta tried to challenge the biggest player in the video game streaming industry during the Covid-19 pandemic – Twitch. Meta created a Facebook gaming streaming platform for this, but it turned out to be a failure. According to Streamlabs data, Facebook Gaming had less than 8% market share just before its shutdown, compared to Twitch’s over 76% share and YouTube’s 15.4% share. However, it seems to be a tough field in general as Microsoft has also tried to build its streaming platform and failed as well. Still, the promising outlook for Meta’s Threads is largely due to the strong user base of Meta’s other social media platforms, as well as the growing anger at Twitter led by Elon Musk.
Verdict: Meta can benefit from diversification
It looks like the showdown between Meta and Twitter won’t be a battle of equals. Twitter doesn’t appear to pose a threat to Meta’s core business, while Meta’s new app clearly poses an existential threat to Twitter. Meta has made some bad decisions in the past that hurt its image and stock price, such as investing in Metaverse or the aforementioned Facebook gaming platform. On the other hand, Threads seems to have a promising risk-reward profile – Meta doesn’t risk much if the app fails, but has much to gain if it succeeds. Meta Platforms is currently trading just under $300 per share — well below its record $380 per share in 2021. That said, valuations don’t generally appear expensive right now. Meta’s P/E ratio is currently around 26 — more or less its average over the last few years — while Twitter’s P/E ratio is around 6, which is pretty low for a tech company.
Comparison between Twitter and Meta. Market cap data for both companies is as of October 2022, when Twitter was acquired by Elon Musk. Source: Bloomberg, XTB
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