The rise of social media over the past decade has been swift and very rewarding for early investors. As social media companies find innovative new ways to gather, use, and sell the information its users provide on a daily basis, this data has become the new currency.
Facebook Inc (NASDAQ: FB) and Twitter Inc (NYSE: TWTR) have developed into veteran social media stocks with established trading histories, but it doesn’t mean other platforms are less worthy. The pandemic has brought them all both positives, such as skyrocketing engagement because of the lockdowns, as well as negatives in the form of reduced ad spending. But each one of them is attractive in their own way.
Facebook remains the gorilla of social media stocks with a market cap of $700 billion. To give you a better idea, it is several times larger than Twitter, Pinterest (NYSE: PINS), and Snap Inc (NYSE: SNAP) combined. The most recent ad boycott appears to have left Facebook almost unharmed, as giants such as Pfizer (NYSE: PFE), Novartis (NYSE: NVS) and AbbVie (NYSE: ABBV) all came back. Did the initiative to pressure the platform to make changes against hate speech work? That remains to be seen, as progress will be closely monitored by brands.
Facebook properties get over 2.7 billion monthly active users, with an average of 1.79 billion active users on a daily basis. Aside from its core business, Facebook is also placing bets on growth areas like on virtual reality via its Oculus products. Grand View Research has forecasted that the VR industry will expand at a compounded annual growth rate of 21.6% until 2027.
Facebook looks like it is on the right growth path. Revenue increased 11% from year-ago levels in its latest quarter and quarterly earnings of $1.80 per diluted share nearly doubled to that of the previous year.
Despite its popularity among certain segments of the population, Twitter has struggled to reach Facebook’s heights. Despite Facebook’s power, it has not taken Twitter’s place in the microblogging universe. With a market cap of just over $31 billion, its size remains small.
Twitter’s daily active users expanded 34% to 186 million compared to the same quarter last year, but its revenue was severely hit by the pandemic, dropping 19% compared to the same quarter last year. Twitter delivered a loss of $1.56 per diluted share for its latest quarter, as opposed to a profit of $1.43 per share one year ago.
Twitter believes that through product improvements that helped in driving user engagement higher and an overhaul of its ad server it recently completed, it could boost its engagement further and retrieve profits.
Pinterest’s strength is found in loyal users and big e-commerce potential. Its virtual discovery platform is a true haven for brands to connect directly to consumers who visit the platform to create a ‘collage’ of products that fit their personal taste.
The picturesque platform has been holding strong since its Q2 earnings report in a market that has been showing weakness. Its greatest strength lies in its inspirational content that is not focused on politics or other controversial topics, protecting it against headline risk that other social media stocks are highly exposed to. Moreover, its loyal userbase that uses the platform for research or to make buying decisions implies a lot of growth potential both in e-commerce and advertising. All an investor has to do is be patient until the company gets better at monetizing its platform.
This is perhaps one of the most underrated social media stocks. Snapchat users are extremely loyal, as the userbase counts 238 average million Daily Active Users that create 4 billion snaps on a daily basis. Their engagement was confirmed in the second quarter, as users opened the app an average of 30 times a day. Its Q2 results contained some impressive figures with a 17% year-over-year increase in revenue and the number of daily active users. These achievements didn’t find their way to the bottom line however, as Snapchat reported a slight loss for the quarter. But its greatest appeal lies in the younger demographic, allowing brands to directly access Generation Z. Like Facebook, it is investing on augmented reality and is launching new features.
Social media + one of the largest technology companies in China
Tencent Holdings Ltd’s (Pink: TCEHY) offers investors with exposure to four different business segments: social media, online gaming, digital advertising, and fintech, all of which continued to thrive throughout the pandemic. Its social media segment is impressive, with China’s top messaging platform WeChat and a social network QQ. WeChat reportedly has over 1.2 billion users while QQ has 659 million users. Both platforms are extremely popular in China, allowing Tencent to generate strong revenue through ads as its social network revenue increased 29% year-over-year during Q2. The only downside is related to trade tensions between the U.S. and China, as it could potentially be delisted from U.S. exchanges.
With so many aspects of our lives shifting online, it makes sense that social media stocks appeal to investors, especially when their business model benefits from online advertising and e-commerce. However, 2020 has altered consumer behavior and brought increased social awareness. There is also the regulatory pressure to think about. For now, Facebook has appeared to be the most immune to external shocks, as it maintained its dominance while expanding its business lines.
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