Social media stocks have recovered nicely from the market downturn in 2022. The Global X Social Media ETF (NASDAQ:SOCL), which is comprised of 43 stocks, has gained 9.6% in the last 12 months. Since bottoming in November 2022, the exchange-traded fund (ETF) is up 50%. It’s a big reversal for the social media space, which was one of the hardest hit when investors sold out of equities in 2022. The large sell-off happened as the U.S. Federal Reserve aggressively raised interest rates to dampen a 40-year high inflation rate.
The rebound is due to several factors that include an expected decline in interest rates, a resurgence in online ad spending and the continued growth and popularity of social media sites, with consumers young and old spending more time and money on the platforms. Here are three social media stocks capitalizing on digital connections.
Pinterest (PINS)
Shares of Pinterest (NYSE:PINS) have been on a run ever since the social media company reported its third-quarter financial results at the end of October. PINS stock jumped 18% the day after the Q3 print, and the share price is now up nearly 30% in the last six months. Over the past year, the company’s stock has gained 36%. It’s a big reversal from 2022 when Pinterest shareholders had to watch as the stock cratered in what was a brutal bear market, especially for technology-related companies.
The dark days of 2022 now seem like a distant memory after Pinterest reported Q3 earnings per share (EPS) of 28 cents, which topped Wall Street estimates of 20 cents. Revenue for the three months ending Sept. 30 rose 11% from a year earlier to $763.2 million, which was ahead of the $743.5 million expected among analysts. The company said that the number of global monthly active users on its platform rose 8% during Q3 from a year earlier to 482 million. Average revenue per user was $1.61, beating projections.
Meta Platforms (META)
In all the hype around virtual reality and artificial intelligence (AI), many investors have lost sight of the fact that Meta Platforms (NASDAQ:META) remains the parent company of both Facebook and Instagram, two of the biggest social media sites in the world. The company continues to derive the majority of its revenue from advertising on those platforms and plows most of its profits from social media into new ventures such as AI and the Metaverse.
Thanks to its profitability and diversification, Meta Platforms stock continues to power ahead, having gained 170% in the last 12 months. META stock has also recovered from a big sell-off during the 2022 bear market.
While AI continues to draw attention to the stock, much of the rebound can be attributed to a recovery in online advertising on the company’s social media sites. Meta Platforms’ online ad sales in Q3 of last year grew by $27.71 billion, pushing overall revenue to the fastest rate of growth in two years.
Spotify (SPOT)
Spotify’s (NYSE:SPOT) stock has been red hot since the music streaming service announced in December that it’s laying off 17% of its workforce in an effort to reduce costs. SPOT stock has risen 115% in the last 12 months, including a 4.6% gain so far just in the first few days of 2024. Company executives have made cost containment a central focus coming out of the pandemic, and it is paying off. Spotify reported a $69 million profit in Q3 of last year due largely to lower spending.
The latest headcount reduction works out to 1,500 jobs worldwide. It comes after Spotify raised prices for its monthly subscriptions earlier in 2023, another move that drew praise from analysts and investors. Spotify is also continuing to expand into podcasts and audiobooks, which complement its focus on music. The company previously cut 8% of its workforce in the first half of 2023. SPOT stock has soared 177% from the all-time low it hit in November 2022.
On the date of publication, Joel Baglole did not hold (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.
