Slowing user growth

Facebook, Inc. (FB) continues to be the leading social network in terms of monthly active users (or MAU). Google+ (GOOG)(GOOGL) and Twitter Inc (TWTR) follow Facebook in this space, as the chart below shows. Meanwhile, all of these social networks are experiencing slowing MAU growth.

Facebook’s MAU increased from 1.32 billion in 2Q14 to 1.35 billion in 3Q14, a sequential increase of only 2.5%. Twitter, on the other hand, managed to increase its MAU from 271 million to 284 million during the same time period. Incidentally, investors punished Twitter’s stock mainly because of the disappointing MAU growth. For more on this, read Why did Twitter’s stock fall more than 10% after its earnings release?

Why Facebook beats Twitter on user engagement metric

Facebook and Twitter focus on user engagement 

To offset the slowdown in MAU growth, these companies are now focusing on user engagement to maintain growth. Better user engagement helps them command higher ad prices from advertisers.

To demonstrate how the user engagement metric works, we’ll compare the ratio of daily active users (or DAU) to monthly active users for both Facebook and Twitter. Facebook’s DAU-to-MAU ratio was 64% as of 3Q14, according to its filings. But, depending on the region, only 40% to 50% of Twitter’s users logged in to Twitter on a daily basis, according to management’s figures cited during the 3Q14 earnings call. So, Facebook scores better than Twitter on user engagement.

You could consider the Technology Select Sector SPDR ETF (XLK) and the PowerShares QQQ Trust, Series 1 (QQQ) to get portfolio exposure to Facebook.

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