In today’s digital era, social media stocks emerge as a strong investment avenue for investors seeking long-term returns.
Social media is no novelty; some call it a defining characteristic of the 21st century. It has reshaped how we consume content, interact with others and shop. Trends show that the average person spends 2 hours and 31 minutes a day on a social platform. Needless to say, these platforms aren’t going anywhere anytime soon.
Given its omnipresence in our lives, the industry’s growth potential remains limitless. Experts predict the social media market will grow from a value of $219.06 billion in 2023 to $251.4 billion in 2024. That reflects a compound annual growth rate (CAGR) of 14.8%.
In other words, investing in companies leading this charge can lead to fruitful gains. Looking back, several top social media companies have generated massive returns since going public. And given its ever-growing presence, there’s no denying its long-term potential. On that note, here’s a look at three of the hottest social media stocks right now.
Snap (SNAP)
Snap’s (NYSE:SNAP) turbulent performance in recent years was driven by increased competition in the space. While this resulted in flat growth in the last year, recent trends suggest significant upside potential for SNAP stock.
One major avenue for Snap’s growth is AI. While the company fully embraced the AI wave, launching several generative AI features on its platform, it has “fallen behind the curve” on machine learning (ML). To address this shortcoming, Snap plans to invest $1.5 million per year in AI to enhance its ML capabilities. Although this investment is unlikely to yield immediate results, it will give Snap a competitive edge in the long haul.
A second tailwind is its growing ad business. Snap introduced the 7-0 Pixel Purchase optimization model, which leverages AI to target users and convert them in a 7-day window. This model helps companies improve their conversion rate while tracking the effectiveness of their advertising at a quicker pace. In Q1, it resulted in a 75% year-over-year (YoY) increase in purchase-related conversions. The model sees plenty of interest from small and mid-sized businesses and will be a major growth driver for the company.
SNAP might not be at its peak, but its massive potential makes it one of the hottest stocks on the market. The company is scheduled to report Q2 earnings on August 1.
Spotify (SPOT)
Spotify (NYSE:SPOT) is one of the hottest social media stocks after turning a record profit in Q2. The music streaming giant put up some impressive numbers, with a 20% growth in revenue YoY to 3.8 billion euros. Operating income surged to 266 million euros while gross margin was up 29.2%. Looking ahead, the company hopes to keep the momentum going and anticipates 4 billion euros in revenue in Q3.
Spotify’s growth this quarter was largely driven by a decrease in personnel costs and marketing spending. The company slashed 17% of its workforce in December. As of Q2, its total workforce consisted of 7,372 employees, down from 9,123 at the end of 2023.
While the revenue numbers paint a pretty picture, a true testament to Spotify’s innovative capabilities is its growing user base. Total subscribers grew by 12% YoY to 246 million, and monthly active users were up 14% to 626 million. In Q3, it hopes to gain an additional 13 million monthly active users and 5 million premium subscribers.
Needless to say, the company justified its double-digit rally post earnings, with several analysts expressing bullish sentiments towards the stock. SPOT stock may be inching towards its all-time highs, but the music streaming giant sees plenty of upside ahead. Investors looking to capitalize on the streaming gains will find this stock a great buy.
Reddit (RDDT)
Since its IPO in March, shares of Reddit (NYSE:RDDT) are up 28% this year. This growth was driven by spectacular first-quarter earnings that saw a 48% increase in revenue YoY with record consumer traffic of 82.7 million. The social media platform expects revenue in the $240 million to $255 million range in Q2 over analysts’ estimates of $224 million.
Whilst still a newcomer in the social media landscape, Reddit’s strategic deals make it a compelling investment. Last week, the company signed a deal with several major sports leagues, including the NFL, NBA, MLB and the PGA Tour.
As part of the partnership, Reddit users will gain access to highlights from the game, behind-the-scenes footage and player AMAs (Q&A sessions). This will translate to increased ad revenue for Reddit from its sports forums. The deal with the sports leagues follows its partnership with Open AI, which will help drive more traffic to its platform.
RDDT stock has gained significantly since its IPO, but the company still has plenty of fuel left in its tank. With lucrative deals and optimistic earnings guidance, this is one of the hottest social media stocks to get behind this year.
On the date of publication, Divya Premkumar 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
