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Better Buy: LinkedIn Corporation vs. Twitter

At first glance, the question of which is the better buy, LinkedIn (NYSE: LNKD) or Twitter (NYSE: TWTR), would seem to be a no-brainer. The on-again, off-again buyout and more recent rumors regarding job cuts has Twitter shareholders riding a stock price rollercoaster. On the other hand, after agreeing to be acquired by Microsoft (NASDAQ: MSFT) for a cool $26.2 billion, LinkedIn's future seems awfully secure.

Twitter hasn't helped itself much, either, after announcing it was changing its third-quarter earnings release time to Oct. 27 before the market opens, rather than after. According to Twitter, the move was made to avoid a conflict with a few other big-time tech stocks' earnings news, but the shift has fueled yet more speculation.

The drama surrounding LinkedIn isn't as spectacular as Twitter, but LinkedIn's deal with Microsoft does raise questions regarding its future direction and potential upside.

Image source: Twitter.

The silver lining

Though investors will keep a close eye on Twitter's monthly average user (MAU) growth, or lack thereof, when it announces third-quarter results, it's also worth monitoring the financial effects of its big-time live-streaming deals with the likes of the NFL, NBA, and Major League Baseball.

Twitter's multiple streaming deals may be the impetus it needs to boost its anemic MAU growth, too, in addition to ad sales. The 3 million MAUs Twitter added in its second quarter simply won't do. That said, lowered revenue expectations for Twitter's pending third quarter may work in its favor -- at least in the near term.

After announcing a 20% jump in revenue last quarter, in part thanks to an impressive 35% jump in data licensing and "other" revenue of $67 million, Twitter analysts are much less enthusiastic this quarter. Consensus estimates are for $605.84 million in sales -- just 6% above last year's $569 million -- though to Twitter's credit, it has beaten estimates for nearly two straight years, so a slight beat wouldn't be surprising.

There's also the buyout rumors that simply won't die. After a lot of back and forth, Salesforce.com CEO Marc Benioff finally succumbed to shareholder wishes and recently nixed a deal for Twitter, seemingly putting the scuttlebutt to bed. However, like any good rumor, it's reared its head yet again, giving shareholders something to hope for.

Image source: LinkedIn.

Where to from here?

The alignment with Microsoft has significant implications for LinkedIn, though the plan is to continue operating as an independent company after the deal is finalized. The potential synergies with Microsoft's Skype and Office 365 and the value derived from the rich data of LinkedIn's 450 million-plus professional members around the globe is enormous.

Of course, change isn't always viewed positively by investors, and even today, LinkedIn is trading 4% below its $196 per share acquisition price. However, LinkedIn is performing in its own right, though the question of revenue diversification remains.

LinkedIn reported an impressive 31% jump in revenue last quarter, to $933 million, with each of its three divisions increasing by over 20%. As usual, Talent Solutions led the way with $597 million, equal to 64% of total revenue. That compares to Marketing Solutions' $181 million and Premium Subscriptions sales of $155 million.

To LinkedIn's credit, the training and development piece of its talent solutions unit will get a boost with Lynda.com online courses now readily available. Training sales are already climbing, up 13% sequentially last quarter to $62 million. And engagement is improving, as demonstrated by a whopping 32% increase in member page views in the second quarter.

Both LinkedIn and Twitter are facing uncertain futures, though the latter's may become clearer with its earnings call on the horizon. The thing is, the questions surrounding LinkedIn seem considerably less risky to investors with Microsoft as a safety net -- less risky than betting on a Twitter buyout. Based on results, and relatively less risk, LinkedIn gets the nod as the better buy.

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Tim Brugger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Twitter. The Motley Fool owns shares of LinkedIn and Microsoft. The Motley Fool recommends Salesforce.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.