5 Social Media Stocks: Where Are They Headed?

A growth opportunity, or a bubble?

The debate has been raging around social media stocks for years now. They continue to sport nosebleed valuations, and yet they deliver the kind of growth in users and revenue that suggests they may actually be able to live up to the hype.

Let’s take a look at six of the top social media stocks, and what you can expect if you invest in them.

5 Social Media Stocks:

1. Facebook (FB)

Facebook social media stocks

On first glance, Facebook looks expensive. Its stock has surged more than 150% over the past year, and its current price-earnings ratio of 82 suggests that it may have surged too far.

But Facebook’s earnings are growing so fast that many analysts still recommend the stock. That P/E of 82 is based on trailing earnings (last year’s results). Switch that to forward earnings (2015 numbers), and the P/E drops to 35—still on the high side, but not as vertigo-inducing as 82.

The basic reason is that Facebook continues to gather new users, both on its own site and by buying others, and has shown that it can generate strong advertising revenue from them. Some see Facebook as a digital landlord, staking an ownership claim over large parts of the web, and then charging “economic rents” to advertisers for access to those millions of users. Based on its huge size and strong growth, that model could generate a lot of profits in the years to come.

Zacks data shows that 28 brokers recommend Facebook as a “Strong Buy,” 6 more recommend buying or holding, and none rate it as a sell.

Verdict: Like

2. Twitter (TWTR)

Twitter social media stocks

These two tend to get mentioned in the same breath as social media behemoths, but actually Twitter has just a fifth of Facebook’s users. What’s worse, user growth is slowing. And unlike Facebook, Twitter hasn’t yet figured out how to be profitable—it’s latest quarterly results showed a $132 million loss.

The stock has taken a battering as a result. After all the hype around its IPO last year, Twitter’s stock briefly soared to over $70, but then slumped to $30. It’s now around $40, still below its closing price on the very first day of trading.

Twitter CEO Dick Costolo has responded with a purge of top executives, replacing the COO, CFO and head of engineering among others. That’s raised hopes of useful acquisitions and growth in ad revenue.

But many remain unconvinced. Most brokers are hedging their bets, marking Twitter as a “hold,” with only 7 rating it a strong buy and 4 flagging it as a strong sell. Until it can figure out how to boost its user growth and post some profits, any investment looks risky.

Verdict: Not Trending

3. LinkedIn (LNKD)

LinkedIn social media stocks

The bad news for LinkedIn investors: the stock is down almost 40% from its 52-week high.

The good news: the stock is down almost 40% from its 52-week high.

The Motley Fool’s Joe Tenebruso believes that LinkedIn’s tumble has created a buying opportunity for savvy long-term investors. He calls it a “time arbitrage opportunity”—a time when a stock falls based on short-term concerns, but retains a strong long-term outlook.

On LinkedIn’s side is that it’s a dominant site for professional networking, it has a history of beating earnings estimates, and it has a solid balance sheet. It also recently announced a new publishing platform that may make users spend longer on the site (currently its user engagement is lower than that of Facebook or Twitter).

LinkedIn’s forward P/E of 64 is still pretty high, though, so the stock could have further to fall. Its long-term prospects look bright, but the short-term ride could be rocky.

Verdict: Hesitant Endorsement

4. Zynga (ZNGA)

Zynga social media stocks

If there’s one thing people love to do online more than find a new job, it’s play games. Social gaming site Zynga surfed that wave for a while, with games like FarmVille proving hugely popular on Facebook and other social media sites.

But it’s a fickle business—people got tired of growing virtual corn and tending imaginary chickens, preferring to blitz bits of candy instead, and Zynga’s stock took a tumble. From its peak of over $14 a share, it collapsed to around $2, and is now at $3.50, well below its 2011 IPO price of $10.

Is it time for a recovery? There are some reasons for optimism, but generally the outlook is quite bleak. The company has moved closer to profitability over the past three years, but is still in loss-making territory. It’s lost the market leadership it once enjoyed, and although CEO Don Mattick has a good track record, his underwhelming performance at an analyst Q&A session recently caused the shares to plunge nearly 10%.

Verdict: Game Off

5. Yelp (YELP)

Yelp social media stocks

Are you feeling lucky? If so, you may want to bet on an acquisition offer for Yelp. Its shares spiked recently, when Priceline.com announced a deal worth $2.6 billion to acquire OpenTable, sparking hopes among investors that Yelp would be the object of a similar acquisition. It became the most widely predicted takeover target on crowdsourced M&A predictions site Mergerize.com.

It could happen, of course, but that’s quite a risk to take. Without the acquisition story, Yelp stock doesn’t look compelling at all. Despite strong revenue growth, the company is still not profitable, and even if it does eke out the expected small profit next year, it’s still trading on a forward P/E of 213.

Plus it now has to contend with a new competitor: Amazon. Ask your local independent bookseller how that contest is likely to work out.

Verdict: 2 stars

What do you think about the prospects of these or any other social media companies? Do you agree or disagree with the verdicts? Let me know by leaving a comment below.

Courses marketplace

January 2, 2021 Update: We have just announced our BEST STOCK NEWSLETTER of 2020 AWARD!

CLICK HERE to find out which stock newsletter was up 78% in 2020 (and whose 2019 picks are now up 113%).

*** Our Award for BEST STOCK NEWSLETTER of 2020 ALERT ***

Updated January 2, 2021

At WallStreetSurvivor, we subscribe to dozens stock recommendation and advisory newsletters. There is ONE newsletter that is constantly outperforming all of the others--The Motley Fool Stock Advisor.

Five of their 2020 stock picks have doubled and the average return of all 24 of their stock picks for 2020 is up 78%!

We have been tracking ALL of the Motley Fool stock picks since January 2016. That's 5 years and 120 stock picks. As of Friday, January 1, 2021 the Motley Fool's January stock pick (TSLA) is up 720%, their March pick (ZM) is up 172%, their April pick of SHOP is up 226% and their June pick CRWD is up 120%; and another two have more than doubled. In addition, 10 of their 2019, 12 of their 2018, 11 of their 2017, 15 of their 2016. Most impressively, over the last 5 years that we have been tracking every recommendation, their average stock pick is up 209%--tht means over the last 5 years their stock picks, on average, have TRIPLED!

Now no one can guarantee that their next picks will be as strong, but our 5 years of experience has been super-profitable. The important thing about the Fool stock picks is you have to buy them the day they are recommended because they usually pop 5-10% in the first 72 hours after the release their recommendation. You sure don’t want to risk missing out on their next pick.

Normally the Fool service is priced at $199 per year but they are currently offering a NEW SUBSCRIBER DISCOUNT that allows you to get theiir next 24 stock picks for just $99/year. HERE is the LINK to visit their New Subscriber Discount page.

CLICK HERE to get access to all The Motley Fool’s Stock Picks and their next 12 months of picks for just $99 per Year! 



GET UP TO $1,000 IN FREE STOCK

WHEN YOU OPEN A ROBINHOOD BROKERAGE ACCOUNT

Robinhood was the first brokerage site to NOT charge commissions when they opened in 2013. They just past 10,000,000 accounts and to celebrate they are offering up to $1,000 in free stock when you open a new account.

Here’s the details: You must click on a special promo link to open your new Robinhood account. Then when you fund your account with at least $10, you will receive one stock valued between $5 and $500. Then, you will get a link to share with your friends. Every time one of your friends opens an account, you will receive another free stock valued between $5 and $500. Click here to learn more about this Special Robinhood offer.

Claim your free stock NOW (before it’s too late)



Comments are closed.