A few months ago, investors were searching for social media stocks to buy if U.S. regulators issued a ban on TikTok. The China-based social media platform had raised too many red flags regarding users’ data safety, children’s health concerns and links to China’s government. This meant a blow to the social media market that would boost other stocks in the sector. One quarter later, it is increasingly clear that the industry is being disrupted by something much wider spread implications: Elon Musk’s treatment of Twitter. Since he purchased the platform in October 2022, the Tesla (NASDAQ:TSLA) CEO has alienated advertisers and driven users away. Now his mission of rebranding Twitter as “X” threatens to harm the company even more, causing permanent damage to its brand. As Bloomberg reports:
“Brand valuation is difficult to determine, and there’s no single approach, which is why estimates vary, said Dipanjan Chatterjee, an analyst with Forrester Research Inc. But several analysts and agencies agreed that the company’s brand has already taken a significant hit since Musk’s takeover. Brand Finance for example, estimates the Twitter brand lost 32% of its value since last year.”
Musk damaging Twitter’s brand is hardly breaking news. One month after he acquired the platform, media watchdog Media Matters for America reported that he had already driven away half of Twitter’s top advertising clients. These companies had collectively spent $2 billion on Twitter advertising since 2020. Now Musk is taking it a step further in what some experts describe as a “meaningless publicity stunt.” This is bad news for Twitter, (X?), but it means further opportunity for its rivals to expand their market share.
Social Media Stocks to Buy: Meta Platforms (META)
As the undisputed industry leader, Meta Platforms (NASDAQ:META) has likely been enjoying Twitter’s gradual demise under Musk. The Facebook parent company has risen over 100% during the past two quarters, riding the waves generated by the new investor focus on metaverse and artificial intelligence (AI) technology. Now that the world is watching its biggest competitor self-destruct, META stock is poised to rise even more. And it is quite convenient that just as Twitter’s demise has sped up, Meta subsidiary Instagram has launched Threads, a microblogging alternative for the many users who Musk has pushed away.
Threads quickly shot to popularity, reaching 100 million users faster than ChatGPT. And as analysts have noted, that quickly put a dent in Twitter’s popularity. Social media user growth tends to be a zero-sum game, and in this case, it’s clear that Twitter’s loss is Threads’ gain, thereby benefiting its parent company. As InvestorPlace contributor David Moadel notes, this new development could easily send META stock to $350 per share before the year is done. Market conditions have shifted sharply in Meta’s favor, and that isn’t likely to change.
Nextdoor Holdings (KIND)
This little-known gem of the social media sector often flies under the radar of most investors. But that doesn’t mean Nextdoor (NYSE:KIND) isn’t worth watching. This platform provides users with a hyperlocal experience, allowing them to connect with people in their neighborhoods. While it still trades at penny stock levels, KIND has risen 30% over the past six months, demonstrating that there is still a demand for the niche service it provides. InvestorPlace contributor Faizan Farooque has named it as an under-the-radar company with a 40% upside potential. In his words:
“Notably, nearly one in three U.S. households uses Nextdoor’s services. CEO Sarah Friar is no stranger to success, with previous experience as CFO of Block (NYSE:SQ), which demonstrated consistent growth in their user base as well. Nextdoor offers a one-of-a-kind advertising opportunity for small and mid-sized local businesses (SMBs) to target customers within their area directly. That kind of expertise gives it a unique niche in the market.”
Nextdoor may not stand to benefit from the demise of Twitter as much as Meta’s other subsidiaries, such as Facebook and Threads. But as Twitter’s users continue to abandon ship, they will need somewhere to turn. This could give Nextdoor exactly the edge that it needs to rise above the $5 price point in the coming months.
Social Media Stocks to Buy: Pinterest (PINS)
While it hasn’t seen as strong a year as Meta, Pinterest (NYSE:PINS) has proven that it can hold its own in the complicated social media landscape. The platform remains a popular choice among users who like to use social media to discover new things, particularly through visual mediums. PINS stock has been rising throughout the past month and recently received a price target upgrade from Evercore ISI, whose analyst sees it benefitting from the global advertising recovery. While that is likely true, it could easily pick up users from Twitter as well, leading to an even better send half of 2023.
Investors should also note that PINS is in a good place to ride the AI wave. While often ranked among social media stocks to buy, Pinterest also uses machine learning to enhance its algorithms, analyzing user behavior and improving content recommendations for them. All this adds up to a promising economic landscape for PINS stock, which has plenty of room to run as conditions continue shifting in its favor.
On the date of publication, Samuel O’Brient did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
