Is Investing in Social Media Stocks a Wise Move?

The Facebook scandal that broke out on March 18, 2018 saw its stocks tumble by 18 percent, with Twitter suffering collateral damage. Less than two months later, the social networking giant had recouped the losses incurred from the furor caused by the Cambridge Analytica disclosure. But Mark Zuckerberg and FB shareholders can’t heave a sigh of relief just yet. More federal agencies are joining the Justice Department in their investigation into Facebook’s data breach.

For people looking for information on how to invest in stocks, is it still wise to put your money in social media stocks?

While Facebook may be the unrivalled darling of social media, it is by no means the only one you can trade on. Social media stocks are relatively new in the stock exchange industry, but they have surpassed older companies in market capitalization.

Facebook Inc. (which is comprised of Facebook, Instagram, WhatsApp and Messenger) and Alphabet (which owns Google+) are the only social media stocks of the seven that are in the mega-cap tech category. Mega cap companies have a market capitalization is of 300 billion dollars or more. Snap Inc. and Twitter belong to the large-cap, with a market capitalization of ten billion dollars or more.

China’s social media sites are also traded in the US. Tencent, which owns WeChat (China’s biggest messaging app) and Weibo (China’s Twitter) are in the mega-cap and large-cap categories, respectively. There are several other China-based companies in the mid- and small-cap levels, too.

Mega- and large-cap companies are generally safer to invest in. Their huge capitalization shields them from market fluctuations caused by factors such as supply and demand, concerns over inflation or government policies, interest rates.

Even revelations of unethical conduct had only a temporary effect on FB stocks. Large-cap companies also assure shareholders of steady dividend payouts and transparency in their financial reports. It’s a no-brainer that buying Facebook and Alphabet stocks for the long-term will yield excellent returns. They’re not part of the FAANG stocks for nothing, after all.

You should take into account that Facebook has proven itself to be not just a flash in the pan. With its active daily users increasing year on year, it’s not going away anytime soon. It also has Instagram, which is now generating 18% of FB’s revenue.

As for Alphabet, better known as Google, although the latter is only a subsidiary, its market cap is bigger than many national economies.

For Twitter, analysts are expecting a 30.24% earnings growth next year over this year’s forecasted earnings. Snap Inc.’s decline in 2018, from a high of $20.75 per share on Feb. 7 to its June price hovering between $12 – $13, and a sharp drop in volume has investors vacillating between buying while the price is low or holding off. Analysts advised Snap shareholders in June to hold their stocks.

Regarding social media companies from China that are trading in US stock exchanges, political and economic factors come into play when deciding whether to invest in them or not. The looming trade war between the US and the Asian superpower over tariffs, their geo-political positions and opposing ideologies, and the Chinese government’s control over their social media sites are issues that could affect them and investors have to weigh the pros and cons before investing in them.
In conclusion, social media stocks must be viewed individually for investing purposes. Read about their performance and revenues, and learn from the views and forecasts of well-respected analysts. Resources for learning about them are available online and there are many books written on the topic of investment. Investing in social media stocks is rewarding but comes with some degree of risk.



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