Social media might be a relatively new phenomenon in the overall scheme of things, but it seems that it is definitely here to stay, which is why a growing number of investors are wondering how they can profit from social media stocks. Depending on what stock you choose, there is definitely room for a potentially huge return.
If you want to check out the current stock price for Facebook, which is unquestionably one of the success stories of recent times, you can do this at Money Morning, but there are more opportunities besides this particular behemoth, so here is a look at the sector.
The Route To Profits
Social networking stocks vary greatly in size and risk profile, with big names like Facebook and Twitter dominating the landscape, but the market is definitely not limited to the star names and there are a number of young pretenders, who perhaps could become the Facebook of tomorrow.
The reason why investors have turned their attention to this sector in recent times, is fairly obvious in some respects, as we have already reached a point where about 25% of our online time is spent using social media sites.
Something that has taken such a strong hold in our psyche and forms an integral part of our daily online habits, must, it would possibly be safe to assume, offer investors plenty of room for growth with their investments.
It is not that simple of course, and there are a number of considerations and concerns that you have to address, such as how Facebook will be able to drive revenue forward at such a rapid rate that they have done in the past, and whether some sites might simply fall out of favor over a period of time.
You only have to consider the likes of MySpace and Friendster, who flattered to deceive, to know that there are dangers attached to social media investing, but there are also potential rewards.
A Look At The Big Guns
A good starting point when looking at investing in social media sites would be to take a look at the real big guns that are household names and see how they have been faring and what they might be able to promise investors in the future.
[pullquote]The largest social media company is Facebook, and if you stood firm and held your nerve after the stock price fell sharply not long after the IPO, you would have been rewarded handsomely, as the price per share has subsequently maintained an upward trajectory.[/pullquote]
The numbers are pretty impressive for Facebook, despite the fact that it can already boast in excess of one billion users, it is still managing to achieve double-digit growth in monthly active users.
Recent results saw Facebook’s revenue grow by almost 60% and profits rise by an impressive 186%, plus they been pursuing an aggressive acquisition strategy that has seen them take ownership of the likes of WhatsApp and Instagram.
The issue with Facebook is perhaps not just how far they can go from here, but whether their current stock price now offers any scope for profits if you are a new investor and not already riding the wave.
Twitter has not fared so well when you look at where the valuation was at the time of their IPO and where it stands today.
Towards the end of 2013, Twitter had a market capitalization of just over $35 billion, but it is down to about $12 billion currently, which must be cause for concern, whether the trend can be reversed.
The likes of Snapchat and Pinterest are also potentially big guns when and if an IPO is announced. Snapchat is expected to deliver revenues north of $1 billion in the next year, and Pinterest already has 100 million users, so there will undoubtedly be a lot of interest if and when shares are offered for public consumption.
These big names and their respective fortunes, do tend to illustrate just how investing in social media companies can be richly rewarding, but you can also find examples where prices can plummet in the blink of an eye.
Understanding Social Media
When it comes to social media startups, there is no shortage of investors who are seemingly very keen to invest money into what are unproven business models at the time and most are not even close to generating a profit.
It has to be said that if you get it right, climbing aboard a fledgling social media business that takes off like Facebook, Twitter or even Snapchat, the potential for decent profits is there for all to see.
It should also be said that social media continues to evolve and with a young crowd forming the bulk of the customer base, attitudes and sentiment can quickly change, meaning that a site can potentially go from hero to zero in no time at all, which would not be good news if you were a stockholder.
Dominic Banks started his journey with stock trading several years ago. He taught himself through trial and error, watching, reading and learning and is now sharing his advice with other self-starters.