Investing in social media stocks
Investing in social media stocks can prove to be an incredible wealth-making opportunity due to the strong growth that it has characterized this new industry over the last one or two decades.
Of course, every investment move should be made with extreme caution, especially after the still fresh memory of the dot-com bubble, which has left an indelible mark that will definitely continue to follow investment decisions for technology stocks for some time. However, the story with Facebook, Twitter, and other social media stocks – and even that of Google itself – seems to be different.
“In what aspects?” you may ask.
In the sense that that the “social” element is what makes these new technology players different to their dot-com bubble counterparts, and where there is social support from big crowds, then success follows and can be sustained in the long run.
Although the heavyweight of social media, aka Facebook, has faced privacy issues recently, people (and in this case, investors) should be reminded of the fact that, although Facebook has grown to become a huge business, its core activity is to provide an online social place for people to interact. That is where it strives to be the best, in order to grow even more. Facebook has stronger roots in society than anyone can imagine, and its business model is based on serving an essential human need, i.e. communication, along with the need to socialize.
Facebook entered this game early, and achieved to do the right things at the right time. Other companies have also tried to follow a similar path to growth and success in the online world, but none of them, except Google and Amazon, had the stamina and persistence to stick to successful practices, eliminate what didn’t work, and innovate all the time. So, I believe that privacy issues will not prove to be enough to stop Facebook’s further success, because I am sure that all these talented and clever people who work for this company will be able to finally find an optimum solution.
Like in any other investment in stocks, a prudent investor should try to discover the intrinsic value in a social media company that is publicly traded. It’s one thing being a technology genius, and a different thing having the required skill and knowledge to run and grow a successful and profitable company that can attract investors’ interest. Google and Facebook had to go through a lot of adjustments to comply with the statutory requirements of running a legitimate business that can finally make a profit (and a big one, as it proved to be the case). In my opinion, this is the turning point that can decide whether a social media startup has the potential to transform itself into a money-making machine, i.e. whether it can move on the next stage from being purely a university student’s dream, to operating as a fully-fledged business in the real world. Those publicly traded social media companies that have managed to achieve this transition are the ones that have proved to be a good investment as stocks so far. What I mean is that, the more capable are social media companies in shifting their operation towards a more business-like approach, by making the necessary adjustments and without compromising their social image, the more likely it is for them to enjoy financial stability, as well as eliminate volatility and achieve growth and success in the long run. These are the ones that investors who look for social media stocks should invest in. So, where is the hidden value that lies in social media as a business?
As I said above, the “social” element is what makes social media different as a business, and what also makes it a complicated and sophisticated task to start and keep on monetizing them profitably. The income of social media companies mostly comes from advertising, and therefore, their financial success relies heavily on how effectively and profitably ads are served to social media users. Again, having literally billions of people to join your network, become members, and interact is one thing, and making money in some way out of them, without disrupting their user experience and sending them away, is another. Can you, as an investor, identify the social media companies that are currently doing, or have the potential to do exactly that? Then, you may have discovered a sound investment that can offer you a nice and steady ROI for years to come, because the social media phenomenon is still young and we have probably not seen the best of it yet.