Social media isn't new anymore, but it is still a fast-growing industry.
There are currently around 5.24 billion active social media users worldwide, which is about 64% of the world's population and more than double the active social media user count a decade ago.
The biggest social networks still make most of their money from advertising, but social media is maturing and generating revenue from sources such as e-commerce, digital payments, and video games.
Investing in social media has amplified shareholder dollars in recent years, as measured by the performance of the exchange-traded fund (ETF) Global X Social Media ETF (SOCL -1.46%). Returns have been driven by top names such as Meta Platforms’ Facebook (META -1.81%), Snap (SNAP -1.93%), and Alphabet’s Google (GOOG +2.50%) (GOOGL +2.37%), which also owns YouTube.
Aside from the major players, plenty of other emerging social platforms are worth your attention. With hundreds of millions of regular internet users, now is a great time to consider investing in social media companies.
| Name and ticker | Market cap | Dividend yield | Industry |
|---|---|---|---|
| Match Group (NASDAQ:MTCH) | $7.7 billion | 2.90% | Interactive Media and Services |
| Etsy (NYSE:ETSY) | $6.1 billion | 0.00% | Multiline Retail |
| Pinterest (NYSE:PINS) | $18.3 billion | 0.00% | Interactive Media and Services |
| Iac (NASDAQ:IAC) | $3.1 billion | 0.00% | Interactive Media and Services |
| Bumble (NASDAQ:BMBL) | $405.9 million | 0.00% | Interactive Media and Services |
1. Match Group
NASDAQ: MTCH
Key Data Points
Match Group (MTCH -0.47%) is best known for its dating sites, Tinder (the top downloaded dating app worldwide), OkCupid, and Hinge. Finding companionship via the web has steadily become normalized over time.
Compared to other large social media businesses, Match has a unique business model. It derives most of its revenue from subscriptions paid directly by users rather than advertising.
Despite experiencing a recent dip in payer numbers, Match Group is demonstrating overall financial strength as management maintains a focus on consistent profitability. The company is actively managing its debt, maintaining strong cash flow, and returning value to shareholders through share repurchases and dividends.
While revenue growth has slowed and even seen negative trends in recent quarters, the company is still generating substantial revenue from its various dating platforms like Tinder, Hinge, and others.
2. Etsy
NYSE: ETSY
Key Data Points
Etsy (ETSY +0.55%) is best known as an e-commerce platform, but it stands out for its unique approach to facilitating online sales. Not only does the company specialize in vintage and handmade goods, but Etsy is also an online discovery platform where shoppers directly connect with creators.
Etsy is currently struggling due to a combination of factors. These include a normalization of consumer spending behaviors, increased competition from other marketplaces, and a shift in consumer spending towards necessities over discretionary items. There's also been a perception among some consumers that the platform is no longer broadly focused on handmade or otherwise original goods.
Etsy is focused on investments in enhancing the app experience, personalization, and marketing to reignite sales growth and increase buyer engagement. The platform is leveraging artificial intelligence (AI) and machine learning to improve search, recommendations, and seller tools. Investors who believe in that value proposition may want to take at least a small slice of the action.
3. Pinterest
NYSE: PINS
Key Data Points
4. IAC
NASDAQ: IAC
Key Data Points
5. Bumble
NASDAQ: BMBL
Key Data Points
What to look for in a social media stock
When looking at a social media stock and before you buy, consider some key factors, including:
- Look at the number of monthly active users (MAUs) and daily active users (DAUs). Consistent growth in these numbers across different geographic regions and user demographics indicates a strong, expanding user base, which is crucial for long-term success.
- Analyze how effectively the company converts its user base into revenue. For example, rising average revenue per user (ARPU) suggests the company is successfully implementing new ad formats or e-commerce features.
- The amount of time users spend on the platform is a strong indicator of the platform's stickiness and value. High engagement makes the platform more attractive to advertisers and less vulnerable to competition.
Beyond user metrics, evaluate a company's standard financial metrics too, such as revenue growth, profit margins, debt levels, and cash flow. A strong balance sheet provides resilience against economic downturns and funding for future projects.
Should you buy social media stocks?
Social media boasts a vast and expanding global user base, making the market ripe for rapid growth and potentially high returns.
- You can invest in established players like Meta (Facebook, Instagram, WhatsApp) and Alphabet (Google, YouTube), or explore other platforms at various stages of their respective growth stories, like Match Group or Pinterest.
- The social media sector continues to expand with increasing internet access and smartphone usage globally.
- The industry is also embracing social commerce and AI, which could offer durable growth avenues for investors.
- Social media companies often generate revenue through digital advertising, and this reality is only expected to continue as businesses continue to shift marketing budgets to online channels.
There are some drawbacks of investing in this space to consider as well, and to factor into your overall risk tolerance assessment as you form your investment thesis for any given stock.
- The social media landscape is constantly evolving, with new platforms emerging and existing ones competing fiercely for user attention and market share.
- The sector faces increasing government regulation and public scrutiny regarding data privacy, content moderation, and misinformation, which can potentially affect platform operations and revenue.
- Social media algorithms determine content visibility, and frequent changes can harm businesses' ability to reach their audiences.
- Social media stocks, like other technology stocks, can be susceptible to market fluctuations and sentiment-driven trading.
The social media business model is still evolving and changing. With roots in advertising-based revenue, social media companies are finding new ways to connect people all over the world while more effectively monetizing their expansive networks. Investors in social media stocks should be comfortable with buying and holding while the social media industry reaches maturity.
Related investing topics
Strategies for investing in social media stocks
If you want to invest in a social media stock, be sure to analyze a company's competitive advantage or moat. This could be a powerful network effect, a unique technology, or strong brand loyalty. Look into its revenue model(s), user growth, and ability to convert user attention into income.
Instead of putting all your capital into one stock, spread your investment capital across different social media companies, or invest in a basket of social media stocks held in an ETF. The social media landscape is volatile, and new platforms are emerging while user trends continue to shift rapidly. A long-term investment horizon can help investors weather short-term fluctuations.
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