3 Powerful Growth Stocks Driven By The Network Effect

The network effect is one of the most effective sources of competitive strength for high-growth companies in the tech sector. This effect basically means that the company becomes more valuable as it gains size over time, so winners that benefit from the network effect generally keep on winning.

Investing in successful companies that benefit from the network effect can be exponentially profitable in the long term, and names such as Facebook (FB), Square (SQ), and MercadoLibre (MELI) are three notable candidates offering massive potential for growth in the years ahead.

Facebook

Social media companies are under the spotlight nowadays, and for good reasons. Consumers are increasingly conscious about the importance of spending time online in moderation and carefully considering the impact that social media can have on their emotional lives and mental health. With the presidential elections approaching, understanding that information on social media can be biased or even downright false is more important than ever.

With the political landscape heating up in the coming weeks, talk about potential regulations for social media can produce a cloud of uncertainty around these names. This is just a short-term concern, though, since it is unlikely that a company such as Facebook is going to be derailed from its long-term growth trajectory due to regulatory limitations.

When used in the right way, social media platforms can be a great way to remain in touch with your loved ones and to find inspiring and uplifting content. Importantly, the larger the size of the platform, the more value it can offer to users. When most of your friends are on Instagram, then you have a bigger incentive to be engaged on the platform too.

Facebook comes second to none in terms of size and reach. The company has over 3.14 billion monthly active people across its family of platforms, and the number of daily active people stands at 2.47 billion based on data for the second quarter.

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Disclosure: I am/we are long FB, SQ, MELI.

Disclaimer: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business ...

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