logo  
Sign in or Register

Already a member?

Sign in

Or sign in with your account on:

Not a member yet?

Register
    

Social Media Stocks: What to Know, What to Look For, and What to Avoid

  +Follow January 21, 2014 9:05AM
Share:
Tickers Mentioned:

Facebook__2_.jpgTen years ago, LinkedIn (LNKD), Facebook (FB), and Twitter (TWTR) didn’t even exist. Today they are collectively worth over $175 billion. And there’s scores of other social media businesses right on their heels, as well as established players like Google Inc. (GOOG) trying to get in on the action.

In such a young, volatile market, picking social media winners can seem like a crapshoot. But even though the market is still being developed, it’s not impossible to see what makes some social media plays successful and others tank.

If a social media company is to succeed – not in the seed stages, but after the IPO as well – they must abide by a few commandments, and investors should be wary of social media companies that do not abide.

Social Media Stock Commandment #1:

The majority of revenue must come from mobile.

As the nature of accessing the net evolves, investors more and more like companies that get most of their engagement via mobile. Whether high mobile usage is merely code for “young users” or “addicted users” is probably not important because they’re essentially the same. But a social media company from 2013 onwards cannot expect to stay relevant if a sizable portion of their users aren’t getting on via their phones and tablets.

And of course, they should be monetizing their mobile users, or at least have plans to do so soon. Facebook was long dogged by this problem, with a lack of mobile revenue holding the company back after their disastrous May 2012 IPO. Facebook solved that problem in 2013, as their triumphant second quarter earnings report showed. Twitter, for its part, has always been at home at mobile. 75 percent of users access the site from a phone or tablet, and that number is sure to increase.

Social Media Stock Commandment #2:

The company must project rapid revenue growth, or the company will get compared in the media to MySpace.

This is part of the reason that in late 2013 Twitter experienced such a surge. While they lacked much revenue history at all when they went public, their projections excited investors greatly. The company predicted that revenue would grow from $316 million in 2012 to $807 million in 2014. Investors liked this very much, partially explaining the 75 percent gap Twitter experienced at their IPO.

Contrast this with Facebook. Like any large company, the $110 billion market cap Facebook is reaching market saturation. Simply put, when you’re already huge it become harder and harder to ratchet high percentage growth. This made investors a little more wary of Facebook at the close of 2013. Ditto for LinkedIn, who after consistently beating analyst expectations had to dial back their projections in late 2013, which sent shares tumbling for the first time in years.

Social Media Stock Commandment #3:

The company must stay relevant with young users, or the company will be labeled “uncool.” This is a social media company’s death knell.

In their third quarter 2013 earnings report, Facebook reported exceptional revenue and earnings. But still their stock tanked. Why? In the conference call following the earnings report, Facebook’s CFO made a passing comment about how teenagers made up a smaller percent of users than ever before. The CFO’s little admission turned a 15 percent upswing (caused by an increase in mobile revenue) to a one percent drop.

In short, the CFO had admitted that Facebook was in danger of not being cool. Like the traditional entertainment industry, social media thrives on “the demo,” or the customers between 18 and 39 that are most coveted by advertisers. With social media, it could be argued that the demo skews even younger. Perhaps the hottest still-private social media company, Snapchat, has wowed investors in large part because of its massive popularity with the 12-18 set.

Social Media Stock Commandment #4:

The company must target advertising, or they will fall to the wayside.

One of the things advertisers love about social media is that it encourages users to self-profess their own demographics. And thus, it makes it much, much easier to throw advertising at users that actually might be of interest to them.

Targeted advertising is more effective, which means companies can charge more to run it. It’s partly a case of necessity. After awhile, large social media companies like Facebook invariably begin to reach market saturation. When you’ve already got over a billion users, where do you go from there?

The answer is you get more money out of the users you already have, via well-targeted ads. This explains why Twitter popped 6 percent when they unveiled a new tailored advertising product named, um, Tailored Advertising. As social media is able to better understand their users’ unique tastes, they can throw ads at them that can have a greater effect, and, in turn, can generate more revenue.

Social Media Stock Commandment #5:

The revenue stream shall have many branches. Revenue diversification pleases the social media investor.

In his analysis of Twitter pre-IPO, Equities.com IPO expert Francis Gaskins praised the company for its diverse revenue streams, noting that it already possessed three main drivers and had eight more in the works. Diversification helps ensure that if one aspect of the social media empire becomes “uncool” (gasp!) then another can begin to pick up the slack. For instance, Gaskins was impressed with Twitter’s video app Vine, which is both popular with young users and tailor-made for delivering short advertising bursts.

LinkedIn, for their part, has always maintained a healthy diversification, offering three revenue streams to ensure a steady flow of capital. And Facebook – oft derided for being too reliant on the mother platform – has made some smart acquisitions in the past couple of years, most notably Instagram for $1 billion.

Social Media Stock Commandment #6:

When the company's brand is about to expire, they must acquire.

Social media companies can’t hope to rely on their incipient platform forever. This would be akin to expecting Western Union to have stayed in the telegraph business. But social media companies can thrive via acquisition of more innovative platforms. Be it Facebook buying Instagram or Yahoo Inc. (YHOO) buying Tumblr, acquisitions can do wonders for diversification and ensuring a company can stay relevant long after its primary business model has become outdated.

Without diversification, a social company is always one MySpace away from becoming Friendster, who of course were one Facebook away from becoming MySpace.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions.


Liked What You Read? Join Equities.com and Connect With Your Favorite Financial Experts FOR FREE! Members of Equities.com gain access to our leading financial news and content, active social investment community, proprietary research tools including the 2014 Small-Cap Stars, E.V.A. reports and more.

Results for lnkd
Langan Stocks
20 Dec 14 15:35:03
$DNR Percent Change Updated Saturday, December 20, 2014 6:03:25 PM $URI $RSP $BIIB $LNKD http://t.co/Rul84UlJdz
Russell Barbour
20 Dec 14 15:16:38
http://t.co/MTBJqkovRA Use coupon code PROFITMAS on any Profitly newsletter 50%+ discount! $TKMR $LNKD $OREX $CNAT
Russell Barbour
20 Dec 14 14:52:56
RT @Maleah333: http://t.co/IQr4K3PgzM Use coupon code PROFITMAS on any Profitly newsletter 50%+ discount! $TKMR $LNKD $OREX $CNAT
Maleah
20 Dec 14 14:51:31
http://t.co/IQr4K3PgzM Use coupon code PROFITMAS on any Profitly newsletter 50%+ discount! $TKMR $LNKD $OREX $CNAT
Twintraderz
20 Dec 14 14:42:14
@traderstewie We like $LNKD and $FB for next week. Great potential!!
Russell Barbour
20 Dec 14 14:42:00
http://t.co/GMJJGs4kuF Use coupon code PROFITMAS on any Profitly newsletter 50%+ discount! $TKMR $LNKD $OREX $CNAT
PennyStock Zone
20 Dec 14 14:29:09
http://t.co/8HTFYrgtXq <- A decent informational video from millionaire trader Tim Sykes $ISIS $YNDX $KO $LNKD $CRUS
IH News Desk
20 Dec 14 13:51:28
$DOW Stock Forum Updated Saturday, December 20, 2014 4:11:20 PM $LNKD $ORCL $SLV $DISCA http://t.co/LAmXCNPnGq
John Hennessy
20 Dec 14 13:47:09
RT @2morrowknight: Awesome diagram from Oscar Berg on "Collaborating in a Social Era". #in $lnkd http://t.co/8ULEMjBh2Q
Langan Stocks
20 Dec 14 13:33:15
$GS Reviews Updated Saturday, December 20, 2014 4:03:27 PM $LNKD $GDXJ $EWY $GPRO http://t.co/75dVuUwNpj
Langan Stocks
20 Dec 14 13:33:15
$LNKD Filings Updated Saturday, December 20, 2014 4:03:27 PM $COP $SH $PCLN $XLF http://t.co/rg0Bi3Jame
BCC
20 Dec 14 13:28:49
$LNKD Upcoming EPS is estimated 0.03 lower than previous year 0.05. Is it good or bad for stock price? Are we expecting beating estimate?
Russell Barbour
20 Dec 14 13:26:41
http://t.co/MTBJqkovRA Use coupon code PROFITMAS on any Profitly newsletter 50%+ discount! $TKMR $LNKD $OREX $CNAT
Stephen s
20 Dec 14 13:24:22
RT @IHNewsDesk: $IYT Last Price Updated Saturday, December 20, 2014 07:11:25 AM $LNKD $RSP $MYEC $IWM http://t.co/EkLZlWttBn
PennyStock Zone
20 Dec 14 13:06:22
http://t.co/50tBJsCjKi <-- how to escape the 9-5 grind by learning to stock trade, knowledge is power $MBT $LNKD $UNXL $VSLR $TSL
moderneconomist.com
20 Dec 14 13:03:49
RT @timothysykes: The Hottest Trader Of 2014: http://t.co/s1E0jT4TRA everyone on $FB $TWTR $LNKD congratulate him!
Timothy Sykes
20 Dec 14 13:00:54
The Hottest Trader Of 2014: http://t.co/s1E0jT4TRA everyone on $FB $TWTR $LNKD congratulate him!
Investimonials.com
20 Dec 14 12:48:09
RT @timothysykes: Solid article "The Anatomy Of A Hoax" http://t.co/4GOXpfkAbK I couldn't let my $FB $TWTR $LNKD fans down without giving s…
Profit.ly
20 Dec 14 12:47:51
RT @timothysykes: Solid article "The Anatomy Of A Hoax" http://t.co/4GOXpfkAbK I couldn't let my $FB $TWTR $LNKD fans down without giving s…
PennyStock Zone
20 Dec 14 12:36:53
http://t.co/iBFjWCzH2N <--- Amazing subscriber to Super_Trades - check out his profit chart!! $ISIS $YNDX $KO $LNKD $CRUS
lestercorp
20 Dec 14 12:33:52
RT @timothysykes: Solid article "The Anatomy Of A Hoax" http://t.co/4GOXpfkAbK I couldn't let my $FB $TWTR $LNKD fans down without giving s…
PolgarStocks
20 Dec 14 12:33:10
$AA Financials Updated Saturday, December 20, 2014 3:07:24 PM $SBUX $PLUG $LNKD $SLV http://t.co/z49ZmAYo4M
John Q. Taxpayer
20 Dec 14 12:21:42
RT @timothysykes: Solid article "The Anatomy Of A Hoax" http://t.co/4GOXpfkAbK I couldn't let my $FB $TWTR $LNKD fans down without giving s…
moderneconomist.com
20 Dec 14 12:07:39
RT @timothysykes: Solid article "The Anatomy Of A Hoax" http://t.co/4GOXpfkAbK I couldn't let my $FB $TWTR $LNKD fans down without giving s…
Timothy Sykes
20 Dec 14 12:07:35
Solid article "The Anatomy Of A Hoax" http://t.co/4GOXpfkAbK I couldn't let my $FB $TWTR $LNKD fans down without giving some quotes here :)
Hempapalooza!
20 Dec 14 12:04:32
RT @Potstocks1: Top 4 Signs the Stock is a Scam http://t.co/ttcBMorB08 #stocks #trading $FB $GPRO $LNKD http://t.co/1ddsB7olwz
IH News Desk
20 Dec 14 11:49:11
$LNKD Stock Message Board Updated Saturday, December 20, 2014 2:11:25 PM $ATHN $ARIA $DIS $GE http://t.co/EJijeVaVG9
PennyStock Zone
20 Dec 14 11:38:37
http://t.co/iBFjWCzH2N <--- Amazing subscriber to Super_Trades - check out his profit chart!! $ISIS $YNDX $KO $LNKD $CRUS
Michael Samhan
20 Dec 14 11:34:23
12-21-14 Trade Plan http://t.co/GHVLkwOXHe $QQQ $IWM $USO $RSX $AKAM $BABA $EBAY $LNKD $FB $YHOO $AAL $DAL $DE $UTX
Langan Stocks
20 Dec 14 11:31:38
$LNKD Filings Updated Saturday, December 20, 2014 2:03:25 PM $MA $USO $SWKS $DNR http://t.co/xflKNwoVo1
sykeslibbyjwl
20 Dec 14 11:24:44
RT @profitly: GREAT ACCOMPLISHMENT on passing $100,000 in profits https://t.co/NqtK9eJ9y6 congrats @StockRealist good stuff! Get inspired $…
PennyStock Zone
20 Dec 14 10:53:04
http://t.co/8HTFYrgtXq <- A decent informational video from millionaire trader Tim Sykes $ISIS $YNDX $KO $LNKD $CRUS
Maleah
20 Dec 14 10:41:34
http://t.co/Hce0Z2DnDs <- TriForceTraders amazing trading journey ($0.5 Million in trading profits in 9 months) $FB $LNKD #belowdeck
Langan Stocks
20 Dec 14 10:31:14
$UCO Investor Opinions Updated Saturday, December 20, 2014 1:03:25 PM $DUST $LUV $JNJ $LNKD http://t.co/wmcEN3vfkU
Rosner Stocks
20 Dec 14 10:31:09
$LNKD Company Info Updated Saturday, December 20, 2014 12:59:25 PM $RIG $XHB $ATHN $EFA http://t.co/Yfl29nVZhv
chartguy89
20 Dec 14 10:08:30
LNKD Stock Chart $LNKD $HD $SOXL $SMN http://t.co/3UX1jBvmZ1 http://t.co/DDiHWxGXRt
IH News Desk
20 Dec 14 09:47:07
$LNKD Last Price Updated Saturday, December 20, 2014 12:11:24 PM $IMSC $NKE $GRCU $NEM http://t.co/lmV5HqqoPC
Pot-stocks.com
20 Dec 14 09:46:33
Top 4 Signs the Stock is a Scam http://t.co/ttcBMorB08 #stocks #trading $FB $GPRO $LNKD http://t.co/1ddsB7olwz
Joseph Dimmick
20 Dec 14 09:43:46
RT @profitly: GREAT ACCOMPLISHMENT on passing $100,000 in profits https://t.co/NqtK9eJ9y6 congrats @StockRealist good stuff! Get inspired $…
marco conta
20 Dec 14 09:42:49
RT @CollaboPartner: "@BizLifeGuru : "20 Questions That Will Free Your Mind" / #inspiration $LNKD #in http://t.co/sMsddgrPlU" #CollaboPartne…
Investors Hangout
20 Dec 14 09:36:46
danrocks: $HRX.TO Making Some Noise $TWTR $T $NBR $LNKD http://t.co/TovkvkPVKI
Investors Hangout
20 Dec 14 09:36:37
danrocks: $HRX.TO Making Some Noise $TWTR $T $NBR $LNKD http://t.co/PtfosdD3tP
iHangout
20 Dec 14 09:33:05
danrocks: ZIP CASH TRAIN: $HRX.TO Making Some Noise $TWTR $T $NBR $LNKD http://t.co/W9Ek9AJnxs
Maleah
20 Dec 14 09:29:56
http://t.co/IQr4K3PgzM Use coupon code PROFITMAS on any Profitly newsletter 50%+ discount! $TKMR $LNKD $OREX $CNAT
danrocks
20 Dec 14 09:27:03
$HRX.TO Making Some Noise $TWTR $T $NBR $LNKD $CVX http://t.co/pNyfD0qld0
Franck Lecomte
20 Dec 14 09:23:40
RT @2morrowknight: Awesome diagram from Oscar Berg on "Collaborating in a Social Era". #in $lnkd http://t.co/8ULEMjBh2Q
Russell Barbour
20 Dec 14 09:19:56
http://t.co/MTBJqkovRA Use coupon code PROFITMAS on any Profitly newsletter 50%+ discount! $TKMR $LNKD $OREX $CNAT
Maleah
20 Dec 14 09:02:03
http://t.co/Hce0Z2DnDs <- TriForceTraders amazing trading journey ($0.5 Million in trading profits in 9 months) $FB $LNKD #belowdeck
HotKeyTrading
20 Dec 14 09:00:09
Annual Highs: $PIKE $PVTB $TVPT $LNKD $BIIB $CL $LLL $GLW $TROW $PRGO $TSS $WPC $CBG $ACOR $QLGC http://t.co/Vv2VEnpBuv #markets #finance
leahanne
20 Dec 14 08:58:23
$UUP DB US Dollar Index Bullish Powershares (UUP) 23.77 +0.10 (+0.42%) $BIR.TO $LNKD $BABA http://t.co/mVllfggzQU
				
				
  +Follow January 21, 2014 9:05AM
Share:

Comments

 

blog comments powered by Disqus

About us

Equities.com is the most advanced interactive online social ecosystem for the financial industry, serving as a resource center and next-generation communication platform that connects self-directed investors with public issuers, market experts, and professional service providers and vendors. Registered members can leverage our exclusive proprietary research tools such as the Small-Cap Stars, which outperformed 90% of all small-cap mutual funds, and robust do-it-yourself E.V.A. research reports. The Equities.com Issuer Dashboard is the ideal tool to communicate and manage investor awareness campaigns to the investment community, as well as to access valuable resources to help your company grow.

Market Data powered by QuoteMedia.
Copyright © QuoteMedia. Data delayed 15 minutes unless otherwise indicated. Terms of Use.