How to Invest in Social Media

MarketsMotley 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.

Investing in U.S. social media brands

Continue Reading Below

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.

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

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.

10 stocks we like better than FacebookWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Facebook wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of September 5, 2017

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.