Social media is a fast growing market that Goldman Sachs expects to double to $480 billion by 2027. To take advantage of this trend, many invest in the obvious social media stocks like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) or Meta (NASDAQ:META).

However, these companies are trading at all-time highs and there is no way to know if they are overvalued. When planning for one’s retirement, investing in hot stocks of the day is too much of a gamble.

Personally, I like to look for social media stocks that are already dominating their respective markets. It also doesn’t hurt if they can pay dividends shortly and are reasonably or undervalued. 

Zoom Video (ZM)

At one point, Zoom Video (NASDAQ:ZM) traded at over $550 per share. Today it trades below $60, 4.5% lower than when it IPOed. 

Even though the hype is gone, Zoom is still the leading video conferencing software with 57% of the market share. With hybrid expected to become the most prevalent work arrangement, Zoom isn’t likely to become irrelevant any time soon. The stock is simply not what it was during the pandemic. 

In quarter one of 2024, Zoom’s revenue improved just 3.2% year-over-year (YOY). However, net income improved from $15.4 million to $216.3 million. The key reason is that Zoom is growing its enterprise customers who have higher margins, and because it’s expanding into an area known as Unified Communication as a Service (UCaas) which could mean unifying all of a company’s internal communications like video calls, chats and phone calls all in one place. For example, one of its fastest growing products is the Zoom Phone, which grew from 4 million users in 2022 to over 7 million this year and is essentially a business phone system that is online. It’s able to leverage its existing enterprise customers to sell them

Trading at a 11.63x forward price-to-earnings (P/E) ratio, it is below Cisco’s (NASDAQ:CSCO) 13.5x even though Zoom has more growth potential. Moreover, it’s proof that Zoom certainly isn’t the Covid-19 bubble stock of the past and that it could be undervalued. 

Adobe (ADBE)

Adobe (NASDAQ:ADBE) Adobe makes a strong investment in the social media economy for one main reason — its industry dominance. 90% of creative workers use Adobe’s Creative Cloud in order to create the content on social media. On top of this, it has strong and proven financials. Since 2015 ABDE has experienced on average over 18% annual revenue growth. Adobe’s net income for Q2 2024 was $1.573 billion, compared to $1.295 billion in Q2 2023, this is a 22% YOY increase, due to the growth of the digital experience segment where it helps companies run digital ads. In addition, this is due to the fact of increased revenue from existing subscribers upgrading to its AI tools. Through Adobe Sensei and Firefly, AI tools are natively implemented and improving users’ productivity.

Its valuation isn’t cheap, trading at a forward P/E ratio of 30.86x. However, with it being a dominant player and potentially giving out dividends in the near future due to its strong earnings growth, I think its valuation right now is reasonable and makes it a great option among social media stocks. 

Amazon (AMZN)

Amazon (NASDAQ:AMZN) can increasingly be considered a social media stock due to its growing position as a digital advertiser and its short-form content app Inspire.

First, let’s establish Amazon’s dominance in its various fields. In e-commerce, it is the largest player with over 40% market share in the U.S. In cloud computing, AWS is the largest player and has 31% of global market share. For video on demand streaming, Amazon’s Prime Video is the largest at 21% of the market share. Lastly, Amazon’s digital advertising business is rapidly growing the world’s third largest digital advertiser at 24% YOY and outpacing competitors. 

Growth in AWS and advertising has driven operating margins to improve from 3.7% in Q1 2023 to 10.7% in Q1 2024, helping Amazon deliver over 200% in net income to $10.43 billion. With strong earnings and better margins, it sets Amazon up to deliver dividend payments soon along with the others in the “Magnificent 7.”

The thorn lies in Amazon’s valuation, which is hard to argue given its trading at all-time highs. However, I would argue that the premium paid is more justified given the fact its current P/E ratio is lower now than when the stock traded below $100. Essentially, what we are seeing right now is that Amazon stock price is returning to its 2021 levels but this time it’s backed up by strong earnings rather than pure hype. I’m willing to take a bet on valuation for a high-quality company like Amazon. 

On the date of publication, Michael Que held a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor held a LONG position in GOOG.