Investing in Social Media Companies

Investing in Social Media Companies

Investing in Social Media Companies

Social media is one of the fastest growing digital sectors in the world today. Not only does this powerful medium permeate our daily lives, but many believe that this expansion will continue well into the foreseeable future. So, it only stands to reason that many astute professionals are beginning to reallocate their funds into this truly massive industry. What are some of the benefits that social media holdings provide and how can this domain be added to an existing portfolio?

An Undeniable Trend

According to the latest statistics, there are currently more than 2.307 billion active social media users across the globe (1). This is nearly one third of the total population of the earth. This figure alone should highlight the importance of the sector. From the perspective of an investor, the main takeaway point is that such size will provide relatively stable profit margins over time. To put it simply, this trend is not expected to reverse its direction anytime soon. Those who are looking for medium- to long-term yields utilising relatively low-risk assets are therefore keen on investing into this domain.

Which Companies?

There has been a recent trend to follow relatively small companies which may soon expand their operations. Although this can often be a sound strategy within other sectors, a word of caution should be mentioned here. The photo-sharing application known as Instagram is an example here. While some believed that Instagram was set to make waves when it was first launched in the latter half of 2012, the fact of the matter is that analysts may have been a bit too optimistic. Therefore, most investors will choose to become involved with more stable firms which have shown consistently positive growth over the years. The current “big three” social media companies are (2):

  • Facebook
  • Snapchat
  • WhatsApp

It is interesting to note here that Twitter has not made the list. The number of users has levelled offer during the past four financial quarters and even sites such as WeChat may indeed gain ground on Twitter in the near future. The bottom line is that those who are looking for stable growth should stick with well-known companies.

Projecting Future Trends

One of the issues with social media when compared to more traditional forms of investing is that it does not necessarily follow predictable growth patterns from the point of view of big data. There are several important reasons behind this observation:

    • Older age groups (such as baby boomers) are now comprising a larger percentage of total users.
    • The younger generation can be quite fickle in regards to the applications that they use.
    • A single software upgrade or change can have an immediate impact upon user perception and therefore, upon the share price.

We also need to point out that smartphone usage is increasing every year. Greater access to mobile devices equates to an even higher number of users entering into the social media domain. Thus, the road to future profits looks very bright indeed.

Portfolio Integration

Investing in social media firms such as Facebook and WhatsApp is a wise idea. The reason for this is that the sector is somewhat independent when referring to the performance of more traditional assets such as commodities or CFDs. When this is combined with the aforementioned benefit of stability, it becomes apparent why many traders are choosing to diversify into social media.

However, we should note that it is wise to allocate only between five and ten per cent of one’s total holdings into this new marketplace. This is the best way to reduce the risk of any short-term losses having a negative effect on overall levels of liquidity.

A final advantage of any social media holding is that larger firms can easily be tracked with the tools offered at CMC Markets. Prices can be monitored, the latest news is available within seconds and therefore, pertinent decisions are able to be made when the time is right. Many view the world of social media as an excellent financial opportunity. When approached with the correct mindset, this is indeed the case.