7 Social Media Stocks: Buy Or Hype?

On the positive side, advertising revenues grew 16% during the quarter while unique app visitors increased 13%. Reviews increased 20% from the third quarter of 2017. Operating cash flow was $116 million for the first nine month and Yelp has nearly $840 million in cash and equivalents.Y elp repurchased 160K shares during the third quarter at an average price of $37.50.

Yelp currently trades at $32. The company is expected to earn $0.37 per share this year, giving the stock a P/E of 86.5. This is one of the highest valuations on our list of social media companies. Due to the uncertainty regarding Yelp’s no term advertising on revenues in the near term and the sky-high valuation, we encourage investors to avoid the stock.

Weibo Corporation (WB)

Launched in 2009 by Sina, Weibo is the largest social media platform in China. Chinese citizens do not have access to other forms of social media like Facebook and Twitter as the government tries to control the flow of information. This allows Weibo to avoid U.S. competition in the social media sector in China.

Key opinion leaders, or KOLs, build following among fans and then monetize their image through advertisements, online sales, and paid subscriptions. KOLs are internet celebrities that have mass appeal among China’s younger generations. Weibo KOL come from industries such as movie celebrities, media outlets and government agencies. Weibo works with these internet celebrities to help them refine their product to improve their quality of content. Higher production values can lead to more subscribers and increased advertisement dollars.

Weibo combines elements of other social media platforms, such as Instagram and YouTube, in hopes of attracting viewers. Users can upload videos as well as perform live broadcasts. The company has done well at increasing the number of advertisements. For example, third party revenue doubled in 2016.

Weibo reported third quarter results on November 28.

Weibo Q3

Source: Weibo’s Third Quarter Financial Release.

The company earned $0.75 per share, $0.05 above the average estimate. This was a 47% increase from the third quarter of last year. Revenue grew 44% to $460.17 million, beating estimates by $1.85 million. While the revenue growth rate is impressive, this is actually the lowest year-over-year increase since the fourth quarter of 2017.

Advertising and marketing revenues increased 48% to $409.3 million. Value-added service saw 18% growth to $50.9 million. Adjusted EBITDA was nearly $193 million, representing growth of 42% from the same quarter of last year.

Average daily users increased 18.2% to 195 million while monthly active users improved 18.6% to 446 million. Approximately 44% of Weibo’s monthly user base access the social media platform each day. 93% of monthly active users use Weibo through their mobile phones, which gives advertisers a sizable digital market for which to place their ads. The company expects fourth quarter revenue to be in a range of $480-$490 million, below consensus of $498 million. Shares were up nearly 5% after the results release.

Shares of Weibo were worth almost $140 as recently as last February. Since then, shares have declined 56% to the current price of $62. The average analyst's estimate for earnings-per-share for this year is $2.65. This results in a P/E ratio of 23.4. This ratio is on the lower end of all the social media companies discussed in this article.

Weibo has done well at monetizing its business as evident by high rates of growth in recent years. There are 413 million people in China under the age of 24 .This represents 30% of the population of the country. This gives Weibo a potentially enormous future user base to pull from. Weibo’s average monthly users represent a little more than 1% of China’s under 24 age group.

If Weibo is able to continue to grow its user base and drive more traffic, it will be able to demand more in advertisement fees. Without competition from some of the largest social media platforms in the world, Weibo stands poised to see sustained growth going forward. We believe that investors looking for access to China could consider adding Weibo to their portfolio.

Alphabet, Inc

Alphabet, better known as Google (GOOGL), is one of two companies on this list (the other being Microsoft) whose main business isn’t directly related to social media platforms, but that doesn’t mean investors looking for exposure to this space shouldn’t consider owning the stock.

Google is a player in the social media industry through Google+, although advertising revenue from search is the company’s main revenue generator.

It is estimated that Google maintains an 80% share in the online search market. Whether it’s looking for research material on the internet, directions to new restaurants to try, vacation ideas or searching for information on practically any topic, people often head to google.com first. There is a reason that “Google it” has become a mainstream phrase. This ability to control so much of the search market has made Google so important around the world.

The company does contain divisions that can be considered more social media like than search. Google’s YouTube.com continues to be a place where people turn to learn new skills such as cooking or how to fix a leaky faucet. Viewers can also view video and music clips from YouTube as well.Google’s email service  Gmail is also one of the most popular email services.

Within Gmail, people can connect to each other through Google+ and have video and teleconferences for business meetings, conference calls and fantasy football drafts as well as video chat with friends and family. The Google Assistant is becoming more popular among consumers and can now speak 20 languages. Google is also investing in Waymo, the company’s autonomous connected car business, which could generate billions in the next decade or two.

Google reported third quarter financial results on October 25.

GOOG Q3

Source: Alphabet’s Third Quarter Financial Results

Google earned $13.06 per share, topping the average analysts’ estimate by $2.65 and growing 36% from the same quarter a year ago. Revenue grew 22% to $33.74 billion, but was $310 million below expectations. A lower effective tax rate (9% compared to 16% for Q3 2017) aided the bottom line. Currency negatively impacted results by more than $300 million.

Sales in both the U.S. ($15.5 billion) and Europe Middle East Africa ($11 billion) grew by 20%. The Asia Pacific China geography saw revenues grow 29% to $5.4 billion versus the previous year. Google saw operating expenses grow 26% to $11.1 billion due to a higher employee headcount and investments in various business segments. The majority of new hires were for technical and sales roles as Google is investing in people to help grow its business. Operating cash flow was nearly $8 billion in the quarter.Google had nearly $120 billion in cash on its balance sheet at the end of the quarter.

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