It feels like the first era of social media has come and gone.
Far from a thrilling novelty in the way we communicate and socialise, social media platforms are an accepted part of everyday life.
Despite being one of the most valuable stocks in the world, Facebook is no spring chicken. Associated with propaganda, political bickering, and the Boomer generation, its public image is a far cry from the slick and exciting newcomer presented in The Social Network. But with 2.7 billion users, it remains the most popular social media channel by far.
When it comes to investing in social media, street cred is not the best metric for assessing value, though. User numbers might be up, but the scope for monetising those numbers can be limited (or neglected).
So when you’re considering social media stocks as an asset class, do you hop on board with the Big 4 — according to market value: Facebook, WeChat, Snapchat and Twitter — or try to spot new social opportunities before they IPO?
Established listed socials
Facebook and Instagram
There’s been a lot of talk (mainly from TikTok users) about Instagram being the next to succumb to the most terrible of fates - becoming uncool. But it’s arguably one of the easiest to monetise, having slowly but confidently ramped up ad presence, and developed Reels as an answer to TikTok’s short video format. Instagram Business accounts are free and packed with tools and functionality for business owners. And ‘Instagrammable’ has become a byword for ‘visually appealing’ in almost every sector.
Instagram is owned by Facebook. To invest in it, you’ll need to buy Facebook stock (NASDAQ:FB). Facebook continues to storm the market, implementing a 30% increase in ad prices that pushed revenues to $28.1 billion in Q1 2021 - a jump of 48%. With a market cap of USD $880 billion, it’s the 5th most valuable stock on the S&P 500.
The future looks bright for the stock, but developing privacy regulation is an ever-present threat. Ad tracking threatens to dramatically impact Facebook advertisers’ ability to reach users. Thanks to Apple’s iOS 14.5 update, users downloading the Facebook app will be prompted to either opt in or out of their activity on other sites being tracked. This means less data to target users. Tightening regulation will always be a concern for investors, but Facebook is and has always been extremely innovative and responsive to these developments.
The tech giant is also constantly developing new functions to rival competitors. The ‘Clubhouse clone’ Live Audio Rooms allow experts and celebrities to live stream talks and interactive sessions, and will be available to all users by summer 2021. Facebook is also testing ‘Soundbites’, an audio-only feature similar to TikTok and Reels. Think quotes, clips, and memes in spoken form.
A key signifier of an older platform’s investment potential is what they’re doing to stay relevant, and Facebook’s drive to innovate, compete, and dominate isn’t going anywhere.
Twitter (NYSE:TWTR) has been slow to optimise its value. But because its model is based on announcements, news, and information, it has vast potential for practical use (as opposed to a place for mind-numbing scrolling ultimately leading to disengagement). Growth in revenue from ads has been slow, and Average Revenue Per User (ARPU) is around $16 - half of Facebook’s at $32.
However, Twitter is still full of potential. User numbers continue to rise steadily. But whether it will prove a good investment depends on proactivity in management. It’s finally greenlighted some new features for 2021: the ‘super follow’ where users pay a small fee for exclusive content and ‘communities’ which taps into younger generations’ desires to create shared spaces based on interests and location.
WeChat is China’s most popular all-in-one social media app owned by tech giant Tencent.
With more than a billion monthly users, WeChat offers a comprehensive range of functions in one place. Think Facebook meets WhatsApp, Vimeo, Tinder, Candy Crush and Amazon plus a few extra functions. The app even enables users to book doctor’s appointments.
While you cannot directly invest in WeChat, you can get exposure to it by buying shares from Tencent (HKG: 0700). Tencent might not be a household brand in Australia, but the tech behemoth is one of the top tech companies in China with a market cap of $755B. Its services include social network, music, web portals, e-commerce, mobile games, internet services, payment systems, smartphones, and multiplayer online games.
LinkedIn traded its first shares in 2011 on the New York Stock Exchange (NTSE: LNKD). However, if you tried to buy those shares today, you wouldn’t be able to. That’s because Microsoft acquired the professional networking platform when LinkedIn lost $10 billion of its market cap after a steep 43.6% drop in its share price in 2016.
But not all is lost, you can still get exposure to LinkedIn by buying Microsoft stock (NASDAQ: MSFT).
LinkedIn is the world’s largest professional network on the internet with more than 750 million members. Since its inception, the business has had an increase of 19% year-on-year and it generated $8 billion in revenue in 2020.
Despite the sweeping uptake worldwide, TikTok's value as a cash-driver is still unclear. Its user base is extremely young, anti-consumer, and highly cynical. In other words, a tough crowd.
Neither TikTok shares nor shares of its parent company ByteDance can be bought on the public market. Currently, the only way to invest is to buy second-hand shares from shareholders via a third party like EquityZen. That is, unless an IPO comes along.
When the Trump administration almost banned TikTok in late 2020 due to concerns about its threat to privacy and national security, it was saved by Oracle and Walmart buying a combined 20% stake in ownership, creating a US arm (TikTok Global). It’s this entity that is being rumoured to IPO. There are no dates yet, but it’s one to watch.
Social media IPOs have historically delivered outsized returns. LinkedIn (NYSE:LNKD) tripled during its first day of trading in 2011. Pinterest (NYSE:PINS) initially listed at USD $19 in 2019 and hit a high of $23.75 on day one. Even Twitter pulled in a USD $25 million market cap despite the fact it had yet to generate profit.
TikTok’s market value alone is estimated at $60 billion, and ByteDance’s value at IPO is being predicted to hit the hundreds of billions.
Discord is expected to IPO this year at an estimated value of $10 billion. Discord combines gaming with social interaction, enabling instant messaging, live-streaming, and gaming communities to come together across the world. Monthly active users doubled during the pandemic, almost tripling revenue. After a recent fall-through in talks with Microsoft, an IPO seems the next natural step for Discord.
Nextdoor is perhaps the most ‘real world’ social platform to exist. Allowing you to digitally meet people in your immediate neighbourhood and send out alerts, recommendations and referrals, Nextdoor aims to turn social media on its head by reconnecting local communities. Following global lockdowns, growing ‘help thy neighbour’ sentiments, and a new impatience with impersonal Zoom calls and staring at screens, this seems timely. Its brand values align closely with those of AirBnb (NASDAQ:ABNB), which more than doubled its share price on its first day of trading in late 2020.
Established vs. new social media stock
Buying into established social stock presents a wealth of data for due diligence. Huge jumps in value are less likely, and growth is projectable and generally reliable.
When it comes to new and pre-IPO stock, as with all investing styles that seek to spot rising trends and next big things, risk and reward are correlatively higher.
For the best of both worlds, there does exist a social media ETF - the Global X Social Media ETF (SOCL). Arguably the best time to buy in would have been pre-global lockdown, but it provides a broad exposure to the Big 8 — according to market value: Facebook, Tencent, Snap Inc., Twitter, Kakao, Alphabet, NetEase and Bilibili.
Although social media isn’t a novelty, global internet access is growing. There is a constant supply of young, highly social, highly tech-literate new users accessing social media for the first time. And apps that deliver constant entertainment and social rewards aren’t going anywhere fast.