Showdown: Meta Platforms vs Twitter

As recently as a week ago the world was watching in awe as two business heavyweights - Elon Musk and Mark Zuckerberg - exchanged blows online and vowed to schedule a real MMA-like fight. The case remains open and we may see two billionaires face one another on a ring one day. Nevertheless, another fight between the two is already underway. However, this is not a martial arts fight but a business fight - a field in which both Musk and Zuckerberg have a vast experience.

A big potential shake-up is looming in the social media industry. Meta Platforms launched Threads, a new text-based communications app, in a challenge to Twitter. App became available for download from app stores today (Thursday, July 6) and launch could not be made at a more opportune time given recent struggles of its main rival, Twitter.

First round: Meta Platforms challenges Twitter

Meta Platforms is premiering its new app today (Thursday, July 6) - Threads. Threads will be an app for text-based communications and will be linked to Instagram, a social media platform owned by Meta. Threads can be seen as a direct threat to Twitter - app will focus on text-based conversations that can be shared among a group of followers and commented on. Public was teased by Threads offering not to impose any limits on viewing content and vowing to remain free services. Highlighting those facts is a clear response to recent changes made to Twitter that restricted the amount of content that can be viewed by users and suggested that more and more Twitter features may be barred behind a paywall.

One of the biggest features of Threads is that, as we have already mentioned, it will be linked to Instagram. This means that it will be easier for current Instagram users, or most likely it will be done automatically, to transfer the list of people they follow on Instagram to Threads. Given that Instagram has over 2 billion monthly active users, this has a potential to give Threads a massive head start and allow it to quickly challenge Twitter's dominance. To put this figure into perspective one should keep in mind that Twitter has 'only' around 240 million monthly active users! Moreover, the userbase of Instagram and Twitter seem to share common demographics, which should make it easier for Threads to attract Twitter users.

Second round: Twitter has been struggling amid recent changes

Launch of a new product by Meta Platforms could not come at a more opportune moment. Its main rival app Twitter has decided on a number of changes to its platform since it was purchased 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 experienced many changes since Musk took over like, for example, changes to verification rules or relaxing content moderation rules. However, the latest change - limits on how many tweets can be viewed per day - have been felt by almost all users and have been widely criticized. Also, plans to put TweetDeck, a popular software for browsing Twitter, behind paywall are drawing criticism as well.

Third round: Can Twitter resist threads?

Meta Platforms is not the first one to develop a rival app to Twitter. However, while many tried and failed to launch a successful Twitter-like app, Meta's product could be a different story. Firstly, the company is huge and has the resources to be successful. Its experience in the field surely comes helpful while its massive social media portfolio will help attract users via cross-platform integration. Meta is a massive company and was priced 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 achieved  a slightly higher compound annual growth in sales since debut (56%) than Twitter (54%).

Secondly, Twitter is having a rough time with new changes. Limits on how many tweets can be viewed threaten to be a massive own goal for the company. While measures aimed at reducing free use of Twitter for business purposes are understandable to some degree, measures that restrict access to the social media content for non-commercial users, who account for a bulk of website traffic and in turn drive ad revenues, are not the way companies should follow.

Another important factor to consider here is that it would not be the first time Meta launches an app based on the success of another company's product. This was the case with Meta's Stories, which are seen as a rival Snapchat, or Reels, which are seen as a rival to TikTok. Although neither of the two managed to dethrone its main rival, both of these turned out to be successful projects for Meta. Meanwhile, Snapchat had a market capitalization of $32 billion when it debuted and it has dropped to around $20 billion now.

Summing up, there is a big chance that Threads from Meta can be a big threat to Twitter. Meta has means and expertise to make the app successful, and proved to be able to make others' ideas work for it. Fact that Threads will be launched during a period when Twitter is struggling will only increase the chance of success.

Fourth round: Threads has its weaknesses

However, it looks like not everyone will be able to use Meta's new app immediately at launch. While the company said that it is preparing to roll out products in over 100 countries, there are signs that it will not be available in the European Union, at least not since the beginning. Independent reported that Meta is not preparing to launch a new service in the European Union now and that the Irish data protection regulator said that Threads will not be launched in the EU for the time being. As Threads appeared in app stores in the UK for preorder option, lack of rollout in the bloc seems to be an issue of EU laws. However, it seems highly likely that a way forward will be found and Threads will eventually premiere in the EU as well, especially if its launch in other countries turns out to be a success. Nevertheless, lack of launch at world's second most important market can be seen as an own goal.

Fifth round: Not every project of Meta turned out to be a success

Reels and Stories are success stories from Meta Platforms but it should be said that it is not always so rosy. Meta attempted to challenge the biggest player in the video game streaming industry during Covid-19 pandemic - Twitch. Meta created a Facebook Gaming streaming platform but it turned out to be a failure. According to Streamlabs data, Facebook Gaming had a less than 8% market share just before it shut down, compared to over 76% share of Twitch and 15.4% share of YouTube. However, it seems to be a difficult field as Microsoft also tried to set up its streaming platform and also failed. Nevertheless, the promising outlook for Meta's Threads is driven primarily by the strong user base of Meta's other social media platforms as well as growing ire with Twitter under the leadership of Elon Musk.

Verdict: Meta may benefit from diversification

It looks like the showdown between Meta and Twitter will not be a clash of equals. Twitter does not seem to be a threat to Meta's main business while the new app from Meta is clearly an existential threat to Twitter. Meta made some poor decisions in the past that weighted on image and share price, like for example Metaverse investment or aforementioned Facebook Gaming platform. On the other hand, Threads seem to have a promising risk-reward profile - Meta does not risk much if the app fails but has a lot to gain should it turn out to be a success. Meta Platforms currently trades slightly below $300 per share - significantly below the record $380 per share reached in 2021. However, valuations do not seem to be rich right now. P/E ratio for Meta currently sits at around 26 - more or less the average for the past couple of years - while P/BV ratio sits around 6, which is a relatively low level for a tech company.

Comparison between Twitter and Meta. Market capitalization data for both companies is for October 2022 when Twitter was acquired by Elon Musk. Source: Bloomberg, XTB