As I write this, shares of Twitter Inc. (TWTR) are surging after the social networking service posted Q4 results. While Twitter posted a net loss of $125.4 million, it was an improvement over the $511.5 million loss recorded this time last year.
Meanwhile, adjusted net income surged from $9.8 million in Q4 2013 to $79.3 million in Q4 2014. Earnings per share came in at $0.12. Revenues also skyrocketed 97% to $479.08 million. And with analysts predicting just $0.06 EPS on $453.14 million in revenue, Twitter posted sizeable earnings and sales surprises.
Looking ahead to FY 2015, management expects revenue $2.30 billion to $2.35 billion, on the higher end of the Street view of $2.30 billion.
Now, as exciting as this news is, I would not buy TWTR on the hype. While a 100% earnings surprise may sound like a big deal, Twitter has posted triple-digit earnings surprises for three of the past four quarters. Even that wasn’t enough to move the stock higher; TWTR has plunged 36% over the past 12 months.
If that weren’t enough, TWTR’s share price is grossly inflated when stacked up against the company’s earnings trajectory. TWTR currently trades at 121.35 times forecasted earnings. For these reasons and more, TWTR ranks as a sell in Portfolio Grader.
So instead of buying into the Twitter buzz, I’d recommend you look into another social networking giant first. Just last week Facebook made a good showing with its own fourth-quarter report, and when it comes to fundamentals, Facebook earns As and Bs on five of the eight metrics I graded it on. Couple that with a solid B for its Quantitative Grade and a more reasonable 29.4 forward P/E, and it’s clear which stock is the better buy. FB measures up as a buy in Portfolio Grader.