How to Invest in Social Media

Markets Motley Fool

social media businesses like Facebook (NASDAQ: FB) and Twitter (NYSE: TWTR) have become common platforms for millions of people to socialize and interact with each other every day. Though they're now commonly used, growth in social media isn't finished. Here's how to make an investment in the promising social media industry.

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Investing in U.S. social media brands

The online social media industry, which got its start in the U.S. with the growing use of the internet in the late 1990s, has really taken off in the last decade. Young companies like Facebook, Twitter, and YouTube have quickly amassed global users numbering in the billions.

Company

Market Cap

Price-to-Earnings Ratio (TTM)

Number of Users (Largest Company Network)

What the Company Does

Alphabet 
(NASDAQ: GOOG) (NASDAQ: GOOGL)

$642 billion

33.3

Over 1 billion (YouTube)

The Google parent company owns social video network YouTube, as well as social network Google+.

Microsoft 
(NASDAQ: MSFT)

$581 billion

27.6

Over 500 million (LinkedIn)

The software giant acquired business networking site LinkedIn in 2016.

Facebook 
(NASDAQ: FB)

$499 billion

38.5

2 billion (Facebook)

Owner of its namesake, the world's largest social networking site, as well as WhatsApp and Instagram

Snap
 (NYSE: SNAP)

$17 billion

N/A

Over 170 million daily users (Snapchat)

The parent of Snapchat, Spectacles, and Bitmoji

Twitter 
(NYSE: TWTR)

$13 billion

N/A

Over 300 million (Twitter)

A social site for microblogging and media

IAC 
(NASDAQ: IAC)

$9.1 billion

40.8

500 million monthly unique visits across all sites

Owner of sites like Vimeo and Home Advisor; purchasing Angie's List

Match Group 
(NASDAQ: MTCH)

$6.4 billion

33.5

Over 6 million paid members across all sites

The parent company of dating and social sites like Match and Tinder

Yelp 
(NYSE: YELP)

$3.6 billion

278.2

28 million monthly app users

A crowdsourcing site for reviews of businesses

Zynga  
(NASDAQ: ZNGA)

$3.3 billion

N/A

19 million daily mobile users across all games

A social-gaming app responsible for games like Farmville and Words With Friends

Groupon
 (NASDAQ: GRPN)

$2.4 billion

N/A

Over 48 million active users (Groupon)

An e-commerce network connecting consumers with local merchants

Meet Group
(NASDAQ: GRPN)

$277 million

16.1

2.8 million daily users across all sites

The parent company of MeetMe, Skout, and Tagged

Though the online social industry is young and continues to grow, the playing field quickly consolidated into a small number of dominant companies. Many smaller players have struggled to find footing, and as a result, profitability has been elusive.

How to bet on the global social media industry

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Many of the largest U.S. companies, led by Facebook, make for interesting investment opportunities, but the investable options get messier when looking overseas. China presents an interesting play, though. With a population nearing 1.4 billion -- over four times that of the U.S. -- China has a fast-growing middle class and a growing number of social media users.

The two companies in the lead are Tencent Holdings (NASDAQOTH: TCEHY), owner of WeChat, and Weibo (NASDAQ: WB); they have over 960 million and 360 million monthly users, respectively. Both are growing their numbers of network users by double digits.

For investors not wanting to bet on the large field of international social-site options, the Global X Social Media Index ETF (NASDAQ: SOCL) might be a good choice. Facebook and Tencent make up 22% of the portfolio, but investors get broad exposure to 30 other social media companies from around the world, including those in the U.S. company chart above.

The fund has over $160 million in total net assets and charges an annual management fee of 0.65%. While it has performed well since its inception in 2011, the underlying index can fluctuate wildly in value:

A good place to start

Facebook is the global market leader in the social media industry, with billions of users on networks like Facebook and Instagram, and messaging apps like Messenger and WhatsApp. The company also continues to grow its user base by double digits, and has one of the highest ratios of revenue to monthly users, at $4.65 as of the second quarter of 2017. That ratio compares to Twitter's monthly user-to-revenue ratio of only $1.75.

China's social media leaders could also be a good buy for long-term investors because those businesses continue to add new users and increase revenues as they roll out new services.

Whatever route you choose, though, it's important to remember that the social media industry is still growing and changing very quickly. Share prices can be volatile as a result. However, for those with a long-term view, investing in social media has plenty of upside.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors; LinkedIn is owned by Microsoft. Nicholas Rossolillo owns shares of Facebook. The Motley Fool owns shares of and recommends Alphabet (A and C shares), Facebook, and Twitter. The Motley Fool recommends Match Group, Weibo, and Yelp. The Motley Fool has a disclosure policy.