Lately, social media stocks have found themselves in the spotlight for all the wrong reasons. Several platforms have decided to suspend the account of former President Trump, creating volatility in the space.
Will that have long-term repercussions? While it doesn’t seem like it now, we never know what the future brings. Perhaps it results in some type of government legislature. Maybe it will tip the scales in regards to monopolistic operations for some.
Although we don’t know the future, we can be sure that social media will still exist. For all its negativity — and there can be plenty — social media has its positives too.
It helps keep friends and family in touch, while allowing users to make new connections with other people. It can also act as a source of education, collaboration and inspiration. Lastly, it helps fuel business. Not just in the sense of ad revenue for the platforms, but by allowing small- and medium-sized businesses to efficiently advertise to and communicate with its customers.
With all that said, let’s look at seven social media stocks to buy:
Social Media Stocks to Buy: Facebook (FB)
We can’t have a list of social media stocks and not start with the biggest of them all. Facebook might have started off small, just being the next step beyond Myspace. However, it has blossomed into a mega tech company with a $720 billion market capitalization.
It’s not just the Facebook platform that’s here, though.
Facebook controls other social mediums too, mainly Instagram and WhatsApp. The company had to pay up for the latter, but the former was practically free once we consider how much it has generated for it since.
Not that $1 billion is peanuts necessarily, but considering the massive growth Facebook has reaped from Instagram since 2012, I’d say it was a pretty good deal. $19 billion for WhatsApp cost a bit more, but still gave the company a solid foothold around the world.
Throw in the fact that Facebook is incredibly profitable, has solid growth and a robust balance sheet, and it’s unlikely this name is going anywhere anytime soon.
Snap (SNAP)
At one point, Snap was certainly disliked by the investment community. The valuation is sky-high, while the company was burning through cash. Admittedly, the growth was solid, but unless Snap made some improvements, the valuation would never justify its financials.
Making matters worse, every time Snap unveiled new features that were a hit with its users, another medium cloned them. Specifically, look at the way Instagram incorporated filters and stories. They became a hit.
But no one is laughing at Snap anymore. In the last six months, shares are up almost 106%. The move has sent shares to new all-time highs, as the stock is up more than 600% from the March low to the most recent high.
While Snap still isn’t generating a profit, analysts expect the company to turn profitable in 2021. In terms of revenue, consensus revenue expectations call 42% growth this year and next.
If achieved, it will result in sales going from $1.72 billion in 2019 to ~$3.5 billion 2021. That will get some attention on Wall Street.
Pinterest (PINS)
The one social media stock that Snap is trailing? Pinterest. This stock has been on a monstrous run … and it’s possible that investors are still underestimating it.
Pinterest shares are up 175% in the past six months and almost 216% over the past year.
When the company went public in April 2019 at $19 per share, the stock was quickly bid up into the $30s. That rally was short-lived though and Pinterest, like many new issues, was a volatile name.
After some more back and forth, it limped into 2020 below its IPO price. Then the novel coronavirus came along, with shares bottoming near $10 apiece. What an opportunity that was for investors.
Like Snap — to an almost scary similarity — analysts expect ~42% revenue growth both this year and next year. If it comes to fruition, Pinterest will log $2.32 billion in sales in 2021. However, Pinterest is already profitable and forecast to become even more so next year, with earnings forecast to double.
With a strong balance sheet to boot, this is certainly a name to keep an eye on.
Twitter (TWTR)
Twitter is certainly a controversial name here, but when we’re talking about social media stocks to buy, it’s hard to ignore this name.
The company has been thrust into the spotlight. While it’s always been in focus because of the breaking news element to its platform, its decision to suspend Trump’s account has created a ripple through both the public and how other companies handled the situation.
The stock has been paying the price too, but perhaps that’s an opportunity for investors.
This company has had trouble finding its stride. Twitter clearly has value because it’s a major source of breaking news and a fast and simple way for people to communicate with their following (like world leaders, for instance). It’s also a hot source for trending topics around the world.
However, Twitter has had trouble sustaining growth. Further, several years ago it tried to sell itself and failed. In that regard, assigning value to Twitter has become the tough part.
Twitter is not forecast to have a very good 2020 campaign, but with the year all but done, 2021 is forecast to be better. Consensus estimates call for 22% revenue growth and 90 cents per share in earnings.
Of the four stocks listed so far, Twitter is one of the cheaper ones and with its market cap of $37.5 billion, it’s smaller than the rest too.
Microsoft (MSFT)
When investors look at Microsoft, social media is not often a business that comes to mind. Tell that to the company’s LinkedIn property.
Microsoft acquired LinkedIn in 2016, dropping $26.2 billion on the platform. Different than its peers above, LinkedIn is more of a professional setting. While advertising revenue is part of the process, so too is a premium membership.
This helps generate better margins for the platform, allowing Microsoft to benefit as well. We are seeing some impressive stats from LinkedIn too, such as 20% revenue growth in 2020, while sales eclipsed $8 billion for the year. That’s more than Snap and Pinterest’s forward years combined.
From the company:
We are seeing record engagement as LinkedIn’s more than 706 million professionals turn to the network to connect, learn, and plan for the future.
Content shared on the platform was up nearly 50 percent year-over-year, and LinkedIn Live streams were up 89 percent since March…Professionals watched nearly 4x the amount of LinkedIn Learning content in June 2020 than they did a year ago.
Tencent (TCEHY)
Venturing outside of the U.S. lands us with Tencent. Interestingly, U.S. investors tend to get bogged down on U.S.-only investments. Facebook sits squarely among the top of social media stocks with its $720 billion market cap, but would you have guessed that Tencent boasts a $750 billion market cap?
Based in China, Tencent does more than just social media. It’s a gaming company that is the “largest video games publisher in the world. It has a stake in the two most popular Battle Royale-style games: Fortnite and PlayerUnknown’s Battlegrounds.”
Further, it owns messaging platforms like QQ and WeChat. While not common household names here in the U.S., these two platforms are used by two-thirds of China’s population, which stands at roughly 1.4 billion people.
It’s estimated that its user base collectively spends more than 1.7 billion hours on the platforms per day. Specifically with WeChat, the platform has evolved to include payments and e-commerce as well. As it was aptly put, Tencent “is like WhatsApp, Facebook, PayPal, Spotify, Netflix and Marvel rolled into one.”
You don’t have to own shares of Tencent, but as one of the world’s largest companies, it’s worth being aware of.
Tripadvisor (TRIP)
While not a traditional social media company, I thought Tripadvisor was a unique one to include here.
Anyone who likes to travel — or just explore new places to eat — is likely familiar with this company. It reviews everything from resorts to hotels to experiences to restaurants. It’s a one-stop shop for travel information.
The social element comes from the community. Users gain points and can level up with more reviews and interaction on the site. Users can also pose questions to the group about what to do in certain cities or ask questions that are specific to an area. It’s a really helpful way to plan your trip or make a last-minute decision when you’re already there.
When it comes to revenue, Tripadvisor does what every other social medium does, which is collect ad revenue. However, it also allows users to book right through its website, which generates booking fees.
With pent-up demand for travel rising, once the world begins to return to normalcy, Tripadvisor should get some heavy traffic for a while.
On the date of publication, Bret Kenwell held a long position in PINS.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
