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Here's Why Facebook and Other Social Media Stocks Are Soaring Today

By Matthew Frankel, CFP® – Updated Oct 21, 2020 at 12:29PM

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Investors seem to be very optimistic about the entire industry.

What happened

The stock market was modestly higher on Wednesday morning as investors awaited the outcome of stimulus negotiations, but social media giant Facebook (META 2.99%) was a big outperformer. As of 10:30 a.m. EDT today, its stock was higher by more than 5%.

Other social media stocks were rising as well. In fact, Facebook's move was the smallest of its peers. Twitter (TWTR) was 8% higher on the day, while Pinterest (PINS -5.16%) was seeing a double-digit pop with shares up nearly 14%.

Man smiling while using laptop.

Image source: Getty Images.

So what

There isn't any Facebook-specific news driving the stock higher. Instead, the gains throughout the social media space are being fueled by Snap's (SNAP 1.16%) third-quarter earnings, which were released after the market closed on Tuesday.

To put it mildly, Snap blew past the market's expectations. It produced a small adjusted profit for the quarter, while analysts had been expecting a $0.05 per-share adjusted loss. On a GAAP (non-adjusted) basis, Snap still lost $200 million for the quarter, but this was 12% lower than a year ago.

Revenue came in more than $120 million higher than expected. Snap expects 47% to 50% year-over-year revenue growth in the fourth quarter and anticipates adding another 8 million active users to the platform.

The company reported 249 million daily active users, which was not only more than expected but represents 18% year-over-year growth and 4% growth since July. It now reaches 90% of the 13-to-24-year-old population in the United States, and over 80% of this demographic in the U.K., France, Canada, and Australia. More than 4 billion Snaps are now being created every day.

Snap CEO Evan Spiegel cited a rapid adoption of augmented reality technology, and had a very optimistic tone when it comes to future growth opportunities. The company has done a great job of monetizing its user base, and a path to profitability is gradually becoming clearer.

Now what

Snap was the first of the major social media stocks to report third-quarter earnings. Pinterest is scheduled to report on Wednesday, Oct. 28, while Facebook and Twitter are both planning to release their latest results the following day.

With such a blowout earnings report from Snap, it's only natural that investors think the strong results could be seen throughout the rest of the industry. But we'll have to wait to see if that's the case. If so, Snap might not be the only stock that gets a huge upside move.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Matthew Frankel, CFP owns shares of Pinterest. The Motley Fool owns shares of and recommends Facebook, Pinterest, and Twitter. The Motley Fool has a disclosure policy.

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