After a rough start to the year, tech stocks have come roaring back. As of this writing, the tech-heavy Nasdaq Composite index has surged by more than 25% over the last two months.
So with market sentiment swinging back in favor of tech stocks, let's have a closer look at two social media stocks that I believe are buys right now.
Image source: Getty Images.
First up is Reddit (RDDT -0.15%).
A relative newcomer as far as social media stocks go, Reddit has only been a public company for a little over a year. However, during that time, its shares have soared by more than 250%.
What's behind that excellent performance? In short, red-hot growth across the board.
For the first quarter, Reddit delivered a stunning report. Highlights included:
- Explosive revenue growth of 61% year over year
- International revenue growth of 82%
- Average revenue per user (ARPU) 23% higher than a year earlier
- Daily average users (DAUs) 31% higher
- Gross margin now 90.5%, compared to 88.6% a year ago
- Net income of $26 million versus a loss of $575 million last year
Reddit, which hosts hundreds of thousands of "subreddits," is part of the growing internet ecosystem that includes large language models (LLMs) like ChatGPT, search engines like Alphabet's Google, and social media networks.
Since Reddit's users create millions of pieces of unique content and post subjective opinions on current events, the platform plays a key role in shaping search results and responses from LLMs.
In addition, the company has gotten into the LLM game with its Reddit Answers feature, which boasts over 1 million weekly average users (WAUs).
Here's the key takeaway: Reddit is an up-and-coming social media stock with a still-modest market cap of $22 billion. Its volatility and meager (for now) profits mean the stock isn't a great fit for everyone, particularly value investors. However, for long-term-oriented growth investors, Reddit is a name to consider in June.
Meta Platforms
Then, there's Meta Platforms (META 1.21%).
What I love about Meta's stock performance is that the company makes it look easy. Consider its latest earnings report. In the first quarter, the company posted:
- $42 billion in revenue
- $17 billion in net income
- $10 billion in free cash flow
Bear in mind that those are figures for a single quarter. On a yearly basis, the company is on track to generate nearly $190 billion in revenue, meaning its total revenue this year could match -- or perhaps surpass -- iconic American companies like Ford Motor Company, General Motors, and Chevron.
META Annual Revenue Estimates data by YCharts.
In addition to its excellent results, the company is also making moves for the future. Meta is spending heavily on artificial intelligence (AI) infrastructure, such as AI chips and data centers. Those investments are intended to upend the advertising landscape -- and put Meta at the heart of the digital advertising ecosystem.
By 2026, the company wants to fully automate ads, allowing brands to cut out advertising-agency intermediaries altogether. What's more, Meta wants to automate the process using AI, allowing brands to customize their ads based on the viewer's location and tastes.
In other words, Meta is aiming for another big leap forward -- one that could deliver another surge in revenue, profits, and free cash flow.
For investors, now could be the time to load up on Meta shares, before the company begins to reap the rewards of its AI investments. However, given how far Meta has already climbed this year (at this writing, the stock is up 19% year to date), a dollar-cost-averaging strategy could be a savvy way to build a long-term position.
