Social media is one of the most influential mediums in the world today. The President of the United States communicates with the world through Twitter TWTR, and becoming “Instagram Famous” is now a legitimate career path if you can obtain enough followers.
The power of social media cannot be overstated. I believe that its power is only going to grow as our society becomes more reliant on it for entertainment, news, and opinions.
Facebook controls the largest of the world’s social media outlets, with 2.9 billion people using one of this enterprise’s family of products, whether it’s Facebook, Instagram, Messenger, or WhatsApp. Meaning that over 60% of the internet accessing world is exposed to Facebook’s influence in some way.
This is why advertisers are willing to pay a pretty penny for ad space on this firm’s family of products. Not only is FB able to drive user growth to seemingly no end but it has been able consistently expand its revenue per user. Facebook’s topline grew 26.6% in 2019 and is expected to grow by over 20% this year as well.
Facebook’s seemingly endless growth potential is now under question with data privacy and regulatory concerns at the forefront of investors’ minds. Regulators may inhibit FB’s targeting advertisement ability, which could considerably hinder its growth.
FB is currently trading at a discount to its sector and the lowest end of its forward P/E valuation. 26 out of 29 sell-side analysts are calling this a buy. FB remains a robust long term investment in my mind as long as these regulatory headwinds blow over.
Pinterest is fresh on the public exchanges and just had its tenth birthday in December. This social media platform is very niche and appears to have strong traction with women who use it share things like fashion, recipes, and workout routines.
This 2019 IPO followed a similar path to its unprofitable tech cohorts like Crowdstrike CRWD, Slack WORK, and Uber UBER, all of which have seen a sizeable price depreciation since theirs shares public debut. PINS has fallen over 8% from its first day of trading in April and has fallen to a single-digit forward P/S.
Pinterest, Inc. Price, Consensus and EPS Surprise
Pinterest, Inc. price-consensus-eps-surprise-chart | Pinterest, Inc. Quote
PINS rounded out the year with over 50% revenue growth and a shrinking deficit. Investors are nervous about this firm’s lack of profitability, yet analysts are expecting the company to be in the black as soon as this year.
I think the markets have priced too much out of PINS and it is lining up as a buy. The average target price for these shares is $29.32, which would represent an over 30% price appreciation from what it’s trading at today. Analysts have been raising their EPS estimates for PINS pushing it up to a Zacks Rank #2 (BUY).
Other Social Media Stocks
Both Snapchat SNAP and Twitter TWTR have seen a substantial amount of volatility since their IPOs and are both down a sizable amount from their first day of trading.
I am not convinced that these two social media giants have the same longevity as their cohorts.
Snap Inc. (SNAP)
90% of Snapchat’s users are between the ages of 13 and 24 (Gen Z’s). This demographic was born in the digital age and are used to the instant gratification that the internet provides with no real loyalty to any one social media platform. Younger consumers are quick to follow fads, as we saw with the rise and fall of Vine (a Twitter subsidiary) years ago and the way Tik Tok has blown up recently.
Snapchat may be just another fad that Gen Z’s will turn away from when the next “big thing” comes out. Facebook’s Instagram is already taking market share from Snapchat with the similar features it offers.
Snaps strongest attribute is its augmented reality filters. These filters are quite advanced and could be used for applications beyond Snapchat’s scope.
SNAP’s stock has gained over 70% in the last 52-weeks as the company drives stronger than expected topline growth. I am still not convinced of this stock’s continued ability to grow and turn a healthy profit.
Twitter was never able to achieve the same level of traction as its cohorts, with only 31 million daily active users in the US. The enterprise continues to be driven by its strong international user growth.
Twitter saw negative topline growth a few years ago, and its current growth levels seem to be decelerating with Q3 exhibiting single-digit YoY sales growth figures and a substantial net income decline.
High profile influencers ultimately drive this platform, and Trump is the king of them all. Trump alone has driven user growth for this platform with this US president posting his every thought on there.
Once the influencers find a different platform to voice their opinions, Twitter will be no more.
Social media is going to continue to influence the world we live in and drive enormous profits while doing so. As an investor, you want to make sure that you put your money where the influence will last. Above I have outlined my opinion on the space and where I would look to invest.
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