As Facebook Inc. dominates the news again today with another acquisition, it raises the question: will deals like this be enough to help the stock finally start beating rival Twitter Inc.?
Twitter has rallied 84 percent since it went public in November, almost triple Facebook's 32 percent gain over the same time through yesterday. Both have dwarfed the less-than 10 percent gain in the Russell 1000 Technology Index. While Facebook has performed better this year, it still doesn't beat Twitter if you start the chart when it went public in May 2012. The shares are up 71 percent since then.
The herds of Wall Street analysts who cover the stocks are clearly on Team Facebook. The world's largest social network is rated the equivalent of buy at 41, or 80 percent, of the firms that cover the stock, according to data compiled by Bloomberg. The rest rate it the equivalent of hold and there are no sells. Twitter analysts stack up more bearishly: 15 sells, or 47 percent, with 11 holds and only six buys.
The average analyst price estimate calls for a 13 percent gain in Facebook in 12 months from yesterday's close, almost twice that of Twitter.
While Twitter has yet to turn a profit, estimates for its sales growth help explain why it's winning the share-price race: an 86 percent increase is projected in 2014 compared with a 44 percent forecast for Facebook.
Those predictions don't account for big acquisitions focused on growth further into the future like the one announced by Facebook after markets closed yesterday.
Reaction to the $2 billion purchase of Oculus VR Inc., which makes virtual-reality goggles, centers on the theme that Facebook has turned to offense. Previously, it used acquisitions to defend against competition for eyeballs by spending on messaging startup WhatsApp Inc. and the Instagram Inc. service for sharing pictures of lunch.
(Note to traders: Oculus VR is a closely-held company so don't confuse it with Oculus Innovative Sciences Inc., which jumped as much as 15 percent, or Oculus VisionTech Inc., which was surged as much as 155 percent today amid confusion over exactly what Facebook was buying.)
Since its IPO in 2012, Facebook has completed or announced more than 40 acquisitions valued at a total of more than $21 billion, according to data compiled by Bloomberg. And its underperformance has improved since the end of 2013, when Twitter's stock was up as much as 182 percent as of Dec. 26.
Twitter has been more conservative with its checkbook: a $36 million purchase of 900 patents from International Business Machines Corp. is the only announced deal since it went public.
Andrew Zamfotis at EVA Dimensions has a buy rating on Facebook and a sell on Twitter. Acquisitions are part of his rationale. He looks at companies' ability to generate EVA, or economic value added, which is profit after taking into account capital that has to be invested to earn it. Despite all the acquisitions, Facebook's EVA growth is "extraordinarily high."
"The company could have hired dozens of engineers and taken them a few years to create something viable," he said in an e-mail. "Perhaps Oculus accomplishes this sooner and allows them to bring something to market faster than they could have otherwise."
While the deal for Oculus is a "long shot with an eye- popping valuation," according to Cantor Fitzgerald, analysts led by Youssef Squali "we remain impressed with management's intense focus on trying to position Facebook for the next computing platform."
Here's something else that's eye-popping about Facebook's purchase of Oculus: though analysts from big banks may be itching for catalysts to prove their bullishness right, you can't accuse any of a conflict of interest in sizing up this acquisition. That's because no bankers were hired to help with the deal.
Now that's something to tweet about.