Stocks to Watch in Social Media

By Markets Fool.com

Social media one of the most interesting industries in technology today. The mobile Web has enabled dozens of start-ups to carve out spots on users' smartphones and grow tremendous audiences. Facebook is closing in on 1.5 billion users, a number that wasn't even possible 10 years ago when the Internet population hadn't even reached 1 billion. That population has nearly tripled in the last decade, and almost everyone uses a social media app of some sort.

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With the rapid growth in social media companies, several are worth close attention. Here are three of the most important publicly traded social media stocks to watch.

Tencent Holdings
Tencent Holdings is best know in the United States as the company behind text and voice messaging system WeChat, known as Weixin in China. The company also runs an online messenger service called QQ. Additionally, it owns a microblogging service similar to Twitter or Sina's Weibo, as well as a more robust social network, QQZone, for sharing photos and other media and writing longer blog posts.

The Weixin (WeChat) logo. Source: Tencent

Tencent is worth watching for several reasons. First, the company is growing rapidly. Last quarter, the company increased revenue 40% year over year after excluding its e-commerce businesses, which it largely spun off in 2014. QQ reached 832 million monthly active users, up 23% from last year, and WeChat now sports 549 million users after growing 39% over the last 12 months.That scale is starting pay off in profits: Operating margin expanded from 34% to 42% last quarter, resulting in profits growing 45% to RMB9.4 billion.

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Second, Tencent's WeChat serves as a template for Facebook's efforts in monetizing its Messenger platform. WeChat includes games, a payments services, and a taxi hailing service. These are all things Facebook aims to feature in its own messaging app, which has 700 million users.

Sina

Sina owns a 56% stake in Weibo. Source: Sina

Sina owns a majority share of its separately listed Weibo microblogging platform. It counts 198 million monthly active users on its microblogging platform, a 38% increase over the last 12 months. The company also operates a Web portal, which relies largely on display advertising.

Ad revenue for Sina's main Web portal fell by 15% last quarter, which isn't particularly inspiring on its own. That's particularly true when compared to Tencent's online ad revenue growth 131% last quarter.

However, when you account for Sina's 56% stake in Weibo and the $2.1 billion in cash on its balance sheet, the market seems to suggest the rest of Sina's business offers negative value trading at a market cap of about $3.4 billion. Perhaps that's why CEO Charles Chao invested almost $500 million in the company earlier this month. With the CEO holding such a large stake in the company, it's clear his goals are aligned with those of investors. That makes this company one to watch going forward.

Twitter
Twitter is well known in the United States, and it's also growing internationally. The microblogging network now sports over 300 million monthly active users, and revenue is growing relatively rapidly. Last quarter, despite missing the company's outlook and analysts' expectations, Twitter grew revenue by 74% to $436 million. Nonetheless, profits have been hard to come by, with just $47 million in net incomeon a non-generally accepted accounting principles basis -- a $162 million loss if you include its stock-based compensation.


Source: Twitter.

What makes Twitter particularly interesting to watch is the recent resignation announcement from CEO Dick Costolo. He will be replaced in the interim by co-founder and former CEO Jack Dorsey. Meanwhile, the board has established a search committee to find a suitable replacement for Costolo.

Twitter's choice for its new CEO will have a significant impact on the company's future. In the meantime, it will be interesting to watch how well Dorsey can lead at the company, which has suffered tons of turnover of upper-level management in the recent past. Dorsey will be balancing his duties at Twitter with his job as CEO of digital payments company Square, making the task all that much more difficult. It'll be interesting to see how things play out at Twitter, and whether it can get back on track with a new CEO.

The article Stocks to Watch in Social Media originally appeared on Fool.com.

Adam Levy owns shares of Apple. The Motley Fool recommends Apple, Facebook, Sina, and Twitter. The Motley Fool owns shares of Apple, Facebook, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.