Facebook and Twitter are common social media platforms that billions use to socialize online each and every day, but should you consider making an investment in the social media industry? If you’re just beginning to learn how to invest, are social media businesses even a good place to start? Social media as an industry has had massive interest from investors, but often we hear that valuations are too high or that newer IPOs are too risky to make money from in the early years. Even though we’ve seen a few social media platforms surge in popularity only to slowly die off, the playing field of major social media companies is relatively small now that the social media industry has generally leveled off and the major players are beginning to stabilize themselves.
As a beginning investor, risk is something you need to consider. Many financial advisors will tell you to spread out your risk with some investments being in lower risk opportunities and some investments being at a higher risk. Some social media businesses are riskier than others, but if you’re more risk averse, there are still some safer options out there.
If you’re considering investing in social media stock, these are several attractive choices that you should check out:
1. Twitter (TWTR)
Twitter became public on November 7th, 2013 and closed its first day of trading at $45 per share. Twitter is generally a more expensive stock to invest in, but boasts impressive ad engagements and user growth. Twitter is also generating revenue through data licensing as companies will pay big money to find out what is trending. The company has generally not gotten too much media flack for user data-related issues, making them a less risky choice as a business itself. In fact, the media has been good for Twitter with politicians often using the platform to test public opinion on certain issues. Twitter has generally shown attractive growth rates, but a declining active user base is also something to consider for the future.
2. Facebook (FB)
There’s no doubt that Facebook, which also includes Instagram and WhatsApp, is the leader of the social media industry, but lately has been a less stable stock option due to company scandals and media coverage. However, Facebook is one of the only platforms that continually grows in users and user engagements and has a stable amount of active users, which is attractive for advertisers. These advertisers see the user numbers and continue to pay for ads on the platform. If you have a high tolerance for risk, Facebook could be a long play that could pay off once the company itself becomes more stable, so consider right now a buying opportunity as an initial early investment..
3. Yelp (YELP)
Although we may not think of Yelp as a social media platform, it averages around 35 million visitors to the app annually to view or leave reviews on local businesses. Yelp is also unique in that it consistently grows in value and has great perks for advertisers, including the ability to pull ads if they aren’t doing well. In recent years, ad revenue has increased dramatically as Yelp made the decision to not require long-term commitments from advertisers on the platform. The recent partnership with GrubHub has also benefit Yelp tremendously. Yelp is also an affordable stock to get started with for beginners and has one of the highest valuations of any social media business.
4. Alphabet, Inc. (GOOG)
More commonly known as Google, advertising revenue is a massive money-maker for company. Alphabet, Inc. also owns YouTube which is the second most visited website in the world with more than 1 billion users. Google is the most commonly used search engine, with an estimated 80% share of the market, and Gmail is tops the list of popular email platforms. Ad revenue is easily a top money-maker for Google, with over $136 billion in revenue generated in 2018. Google expects advertising revenue to rise to nearly $163 billion in 2019. Being a multi-service platform also makes Google unique because users are utilizing the company’s products for so many different uses. Investing in research and development also primes Google to grow, and Google doesn’t let operating costs keep the company from moving forward. Google sees this investment as an opportunity for future growth and profitability. Google in general is reasonably valued as a company and has steady growth, making it an interesting starter investment for beginners.
5. Microsoft (MSFT)
Similarly to Google, Microsoft does much more than social media. However, Microsoft dove into the social media world with its 2016 purchase of LinkedIn. LinkedIn has around 300 million users and has had massive growth in recent years as a unique business-minded platform and Human Resources powerhouse for recruiters. One of the most surprising growth areas for Microsoft has been in its cloud and gaming software. Mircosoft Azure has boosted the company even more into the Cloud space, growing even faster than Amazon. The Office suite of products and Windows platform also continue to bring in a steady growth of sales for the company. Having the most diverse range of products also boosts Microsoft as a good stock buy. If you have the ability to put a larger amount of money into the stock market, Microsoft is a good place to go with relatively low risk. Because Microsoft continually grows, it’s a safe bet for investors, old or new.
Opening in April 2019 at $19 per share, Pinterest is the newest social media stock around. With over 250 million active users, Pinterest has primed itself as a “visual discovery engine. With over 175 billion pins from its users, the image-based search platform boasts itself as the best place to find recipes, fashion trends, articles, and more. Upon its stock market debut, Pinterest was valued at $16 billion. Pinterest brings in revenue just like all social media platform, through aggressive sales of advertising space. In 2018, Pinterest sold over $756 million dollars in advertising, an over 70% increase from sales in 2017. However, Pinterest has the unique challenge of attempting to continue to accelerate its advertising sales. Most of the users are actually based outside of the U.S., and bringing advertisers away from other platforms like Facebook and Instagram have been a challenge, especially since around 80% of Pinterest users are women, limiting the reach and demographics of advertisements shown on the platform. While Pinterest is off to a strong start, it’s too early to make an predictions on how the platform will perform in your portfolio in the months and years to come.
7. International Social Media
Interested in investing overseas? China’s Weibo (WB) and Sina (SINA) are options to look into that have been showing massive growth in the international social media market. Weibo is generally known as the Twitter of China. The platform, like it’s U.S-based counterparts, continues to bring in new users each month and drive growth through sales of advertising space. E-commerce giant Alibaba is one of Weibo’s largest purchasers of ads. While Weibo has been more unsteady in recent years, with trade-wars and the stock market in China as a whole not helping, Weibo could be a long game that could eventually pay off for investors, especially those that are able to snatch up shares when they are at a low price.
Sina, which is similar to Yahoo, is one of China’s oldest technology companies. Revenue largely comes in through Sina’s news portal sites. While stock has dipped in recent years, investing in high-growth areas such as live-video streaming prime Sina to grow as it improves its offerings and it’s advertising sale continue to grow. Similarly to Weibo, purchasing Sina stock shares while it’s down could bring larger returns in the future as the tech giant stabilizes in the overseas market.
While tech giants Google and Microsoft are not standalone social media companies, their social media exposure and longer history make the good options for any investor. In general, Twitter and Yelp are slightly overvalued in the stock market and a little more unpredictable. Facebook is risky, but given its ability to bring in advertisers, may be a good choice as an investment for the long haul. As the new kid on the block, it’s too soon to tell how Pinterest will perform. Don’t be afraid to do a little research and look to other platforms such as Zoom or Lyft, which also recently started trading shares publicly. Investing in newer companies is considered riskier than well-established organizations, and generally most IPOs underperform in their first initial years, but these investments could pay off in the long run. Purchasing international stock at today’s low prices could also potentially bring in greater returns in the coming months and years.
No matter how you start, investing is a great way to get your money to work harder for you. Know your personal attitude for risk and consider getting your start with investing in social media businesses.